TriQuint Semiconductor - University of Oregon Investment Group

May 17, 2013
Technology
TriQuint Semiconductor
Ticker: TQNT
Recommendation: Sell
Current Price: $5.95
Implied Price: $4.24
Investment Thesis
Key Statistics
52 Week Price Range
4.30 - 6.10
5.13
50-Day Moving Average
Estimated Beta
1.69
Dividend Yield
N/A
Market Capitalization (M)
962.93
3-Year Revenue CAGR
7.80%

TriQuint is in perfect position to capture emerging market growth and
infrastructure expansion for 3G/4G LTE development

Key design wins from leading original equipment manufacturers such
as Samsung and Blackberry combined with increasing demand will
propel growth

TriQuint’s inability to manage capacity results in high levels of fixed
costs, cutting into margins

Lack of positive and significant free cash flow affects TriQuint’s ability
to acquire other companies and drive growth
Trading Statistics
Diluted Shares Outstanding
$16.00
400,000,000
$14.00
350,000,000
$12.00
300,000,000
$10.00
250,000,000
$8.00
200,000,000
$6.00
150,000,000
39.41%
$4.00
100,000,000
6.87%
$2.00
50,000,000
Average Volume (3-Month) (M)
Institutional Ownership
Insider Ownership
EV/EBITDA (LTM)
2.52
73.70%
0.65%
14.23x
Margins and Ratios
Gross Margin (LTM)
EBITDA Margin (LTM)
Net Margin (LTM)
Five-Year Stock Chart
160.9
-7.03%
Debt to Enterprise Value
$0.00
May-08
0
Dec-08
Jul-09
Volume
-
Feb-10
Sep-10
Adjusted Close
Apr-11
Nov-11
50-Day Avg
Jun-12
Jan-13
200-Day Avg
Covering Analyst: Tyler Markgraff
[email protected]
1
University of Oregon Investment Group
University of Oregon Investment Group
May 17, 2013
Business Overview
General Overview
Figure 1: TriQuint GaN Fab
Source: Oregon Live
Figure 2: 2012 TriQuint Operating Revenue Breakdown
Defense &
Aerospace
12%
Network
23%
Mobile Devices
65%
TriQuint Semiconductor was originally incorporated in California in 1981 and
later reincorporated in Delaware on February 12, 1997. The company was
formed as a subsidiary of Tektronix in 1985 by a group of engineers researching
and developing the use of gallium arsenide (GaAs) for wireless applications. On
December 14, 1993 the TriQuint Semiconductor IPO raised $17 million and was
listed on the NASDAQ stock exchange under the ticker symbol TQNT.
Throughout the next 14 years, TriQuint acquired numerous companies and
added valuable technologies such as Surface Acoustic Wave (SAW) and Bulk
Acoustic Wave (BAW) to their vast portfolio. TriQuint uses these industryleading technologies to find radio-frequency (RF) solutions for customers, all
the way from the design stage to the manufacturing process. TriQuint is
headquartered in Hillsboro, Oregon with sales, design and manufacturing
facilities in Asia, Europe and North America with main facilities in Oregon,
Texas and Florida. With one of the industry’s largest GaAs foundries, TriQuint
works with clients to design custom RF solutions. The foundry combined with a
wide variety of technologies allows TriQuint to provide customers a tailored and
comprehensive experience. Facing increasingly complex technologies, TriQuint
strives to create integrated solutions for customers and today TriQuint continues
to deliver simple and effective RF solutions to customers.
Revenue
TriQuint generates revenue from their RF products and foundry services. The
company’s broad range of technology allows them to work with customers to
find and deliver a unique, integrated RF solution. Products are sold through
independent manufacturers, distributors and sales staff. TriQuint also generates
revenue through research contracts, specifically with the United States
government, to further develop RF components in GaN and GaAs. This
contracted research allows TriQuint to preview new technologies and make any
fitting acquisitions that will benefit the company.
TriQuint focuses on three end markets: mobile devices, networks and defense &
aerospace.
Source: TriQuint Semiconductor 2012 10-K
Figure 3: 2012 Mobile Devices Revenue Breakdown
2G 4%
Connectivity
17%
Mobile Devices – 65%
Revenue for the mobile devices segment comes from RF products used in
mobile devices such as cell phones and tablets that have an increasing number of
uses and features such as global positioning systems (GPS), Bluetooth and
internet access. The mobile devices segment accounted for 65% of total revenue
in 2012. Mobile devices are broken down into 3 sub-segments: 3G/4G, 2G and
connectivity. Products such as filters, duplexers and amplifiers in this segment
support 2G, 3G and 4G voice standards, CDMA (code division multiple access),
LTE (long-term evolution), WLAN (wireless local area network) and
Bluetooth®.
Networks – 23%
3G/4G
79%
TriQuint’s network segment supplies products that help transfer voice, video
and data across cellular infrastructure. The network segment accounted for 23%
of total revenue in 2012. The network segment is divided into 3 sub-segments:
transport, radio access and multi-markets.
Source: TriQuint Semiconductor 2012 10-K
UOIG 2
University of Oregon Investment Group
May 17, 2013



Figure 4: 2012 Networks Revenue Breakdown
Transport: Products for both wireless and wired broadband connections
for CATV (cable television), optical transport networks (OTN) and
fiber-to-the-home (FTTH) applications.
Radio Access: Products designed for base stations that support 2G, 3G,
4G/LTE across multiple carriers and multiple cellular standards.
Multi-Markets: Products used in automotive radar, telematics and
advanced metering infrastructure (AMI) applications.
TriQuint offers amplifiers, attenuators, frequency converters and SAW/BAW
filters designed for the previously mentioned applications.
Defense & Aerospace (D&A) – 12%
Multi-Market
16%
Radio Access
34%
Transport 50%
Source: TriQuint Semiconductor 2012 10-K
TriQuint is DoD accredited and offers high-performance/high-reliability RF
solutions for electronic counter-countermeasure (ECCM), communication,
navigation, radar and space applications. The defense & aerospace segment
accounted for 12% of total revenue in 2012. The largest customers in this
segment are military contractors that serve the United States government. The
products TriQuint makes are used in ground-based radars and to track threats
against defense forces. Products such as filters and amplifiers in this category
are used in large scale programs and usually have long lead-times. TriQuint is
engaged with the United States government and working on contracts with
Defense Advanced Research Project Agency (DARPA) and the Air Force
Research Laboratory (AFRL) to develop more advanced RF components using
GaN and GaAs. Previous experience with F-22 and F-18 systems allows
TriQuint to work on the F-35 Lightning/Joint Strike Fighter (JSF) program.
Revenue from the D&A segment can fluctuate widely from year-to-year because
of timing of government programs and other contracts.
TriQuint Technology
Figure 5: TriQuint CuFlip Technology
TriQuint holds unique and revolutionary technology such as gallium arsenide
(GaAs), gallium nitride (GaN), surface acoustic wave (SAW), bulk acoustic
wave (BAW) and Copper Flip (CuFlip) in their broad portfolio. These
technologies provide TriQuint with a unique advantage above competitors by
allowing the company to design custom RF solutions with industry leading
technology for customers.

CuFlip: This is TriQuint’s patented flip chip connection technique.
Instead of using wires to bond chips, CuFlip uses copper “bumps.”
CuFlip provides advantages such as lower cost, reduced materials, and
design flexibility providing customers with superior RF performance.

GaAs & GaN: GaAs technology allows electrons to travel five times
faster than in silicon and as a result, GaAs circuits can perform at
higher levels and consume less power. GaN devices that TriQuint
manufactures are smaller than GaAs products and can operate at wider
bandwidths and frequencies. These two technologies allow TriQuint to
manufacture integrated circuits that increase battery life in mobile
devices, something customers are demanding with the flood of new
mobile devices.

SAW & BAW: These technologies offer advantages over traditional
filters such as stronger frequency control, less distortion, reduced size
and weight and higher reliability. SAW technology is used in
Source: Google Images
UOIG 3
University of Oregon Investment Group
May 17, 2013
applications that operate at lower frequencies while BAW technology is
used at higher frequencies.
Strategic Positioning
Foundry
Figure 6: TriQuint Foundry
TriQuint houses one of the world’s largest GaAs foundries. A foundry is a
semiconductor fabrication plant that allows OEM (original equipment
manufacturers) and fabless semiconductor companies to contract companies
such as TriQuint to turn their designs into products. This key portion of the
company allows it to keep up with industry trends and technology.
High-Volume Supplier
TriQuint has a diverse and expansive portfolio of technology and uses this
portfolio to provide customers with low-cost and high-quality solutions. This is
especially applicable in the mobile devices end market where cost-effective and
uniform solutions are key. While TriQuint has had issues managing high
volumes of demand, they continue to expand capacity in expectations of high
demand.
Integration
Source: TriQuint Website
As a high-volume supplier with a large in-house technology portfolio at their
disposal, TriQuint has the ability to design custom RF suited for customers’
needs. With the vast selection of technology, TriQuint’s qualified engineers are
able to reduce design time and speed up manufacturing while creating a longlasting and reliable product. In addition, foundry customers are able to employ
TriQuint’s high-volume capabilities to construct an integrated solution that uses
less power and is more efficient.
Research and Development
Figure 7: Annual Research and Development Spending
250
Acquisition History
200
Dollars ($M)
To stay ahead of competition in the semiconductor industry, a company must
make significant investments in research and development. TriQuint focuses
research and development funds toward improving design and manufacturing
processes in addition to more fundamental aspects, such as materials, product
concept and testing. This helps TriQuint continue to expand their extensive
patent portfolio and work toward their ultimate research and development goal
of improved time to market.
150
In the last ten years TriQuint has made numerous acquisitions to add valuable
technologies to their portfolio. These acquisitions have been fundamental to
growth and staying competitive in the industry. Below is a list of significant
acquisitions in the past twelve years.
100
50
2002 – Acquired Infineon’s GaAs business in Munich ($49.56M)
0
Source: TriQuint Semiconductor 2012 10-K
The acquisition of Infineon added 60 employees and allowed TriQuint to jointly
develop and produce integrated RF solutions.
2005 – Acquired TFR Technologies in Bend, OR ($5.3M)
As a result of the TFR Technologies acquisition, TriQuint gained BAW
technology, a technology critical in the development of high-frequency filters
for wireless communication products.
UOIG 4
University of Oregon Investment Group
May 17, 2013
2007 – Acquired Peak Devices in Boulder, CO ($15.1M)
Figure 8: WJ Communications Logo
Peak Devices was acquired to strengthen TriQuint’s product portfolio for the
high-power market. Peak Devices was a fabless semiconductor company that
focused on fabrication of discrete RF transistors.
2008 – Acquired WJ Communications in Silicon Valley, CA ($72.6M)
Source: Google Images
The acquisition of WJ Communications provided TriQuint with a strong line of
GaAs products such as amplifiers and mixer components that complemented
TriQuint’s current offerings. This acquisition further strengthened TriQuint’s
base station and network operating segment.
2009 – Acquired TriAccess Technologies in Santa Rosa, CA ($9.4M)
TriQuint’s acquisition of TriAccess Technologies allowed the company to
expand their CATV and FTTH technology and product line. The new products
and technology positioned TriQuint to offer end-to-end solutions for signal
amplification while bolstering the network operating segment.
Business Growth Strategies
Figure 9: TriAccess Technologies
Source: Google Images
Acquisitions
Historically TriQuint has grown both organically and through acquisitions but
since free cash flows have trended toward zero and gone negative, the company
has not made any significant acquisitions. Some of the company’s core
technologies such as SAW, BAW and GaAs have all been acquired through
purchases of other companies. For example, the 2005 purchase of TFR
Technologies added bulk acoustic wave (BAW) expertise to TriQuint’s abilities.
This acquisition along with others and their respective technologies have fueled
much of TriQuint’s growth and until free cash flows become positive and
substantial, TriQuint will not make any significant acquisitions.
Organic
Figure 10: Worldwide Smartphone & Tablet Shipments
In the coming years the majority of TriQuint’s growth will be organic due to
lack of free cash flows. The rapid expansion of smart phones and other wireless
devices and increased demand for enhanced voice and data connections globally
will drive the majority of growth. Complex wireless devices have more
applications now more than ever and this growing number requires more
powerful amplifiers, filters and switches. Along with the increasing number of
RF bands, this niche is growing rapidly.
1200
Current cellular infrastructure is unable to support the growing data traffic
produced from smartphones and tablets. On average, a 4G connection generates
19 times more data traffic, therefore infrastructure must be expanded. TriQuint
is poised to capture this expansion of wireless and wired infrastructure with their
radio access products. Network products that support 2G, 3G, 4G/LTE and
multi-carrier, multi-standard base stations will benefit from the drive to expand
infrastructure as a result of the smartphone, tablet, and other wireless devices
growth.
Millions of Units
1000
800
600
400
200
0
Media Tablets
Smartphones
Source: Quora
TriQuint’s largest customer is Foxconn accounted for 31% of revenue in 2012.
As a supplier to Apple, Foxconn has contributed to a large amount of growth
and revenues in the previous years. In 2011 35% of TriQuint’s revenue was
from Foxconn and it has since declined which is the force behind decreasing
UOIG 5
University of Oregon Investment Group
May 17, 2013
growth in the 3G/4G segment. Looking forward, TriQuint’s ability to maintain a
positive relationship with Foxconn and Apple will determine a large percentage
of total sales while decreases in demand will significantly affect sales.
Industry
Overview
Figure 11: Import Penetration into Manufacturing Sector
32
Percentage
30
28
26
24
22
Source: IBIS World
The semiconductor industry is very competitive and this is the driving force of
companies striving to increase efficiency and performance while offering
products at a lower price. Maintaining market share requires constant innovation
to develop new and more complex and efficient products that consumer less
power. Pressure to continually release new products means companies must
invest heavily in research and development.
Historically semiconductor companies have been vertically integrated by both
owning and operating fabrication plants, or foundries, while also conducting
research and development. Barriers to entry such as significant amounts of
capital and fixed costs, companies tend to outsource fabrication overseas. Not
only are barriers to entry driving outsourcing, but cheaper labor and lower-cost
alternatives abroad are as well. Total US demand for semiconductors is expected
to be $96.1 billion in 2013 while imports are going to satisfy 47.3% of domestic
demand.
Downstream demand for the semiconductor industry is comprised of mainly
investment in computers, telecommunication network equipment and mobile
devices. Demand for domestic computer manufacturing has decreased at an
annualized rate of 7.4% in the five years leading up to 2013, signifying
semiconductor revenues will face adversity in that segment. On the other hand,
consumer electronics, a big source of revenue for semiconductor companies, is
expected to grow at an average of 10% or more per year from 2013-2016. As a
result of dependency on downstream demand to drive revenue, the revenues in
this industry are highly volatile.
Cyclicality
Figure 12: Smartphone Users in U.S. 2010-2016
2017
Macro Factors
2016
Smartphone Users (M)
The mobile devices market for the semiconductor industry is cyclical due to the
holiday seasons. Increased demand during Q3 and Q4 is the driving factor of
revenue and as a result, Q1 revenues are generally the weakest.
2015
2014
2013
2012
2011
2010
2009
2008
2007
Source: Statista
United States
With over 50% of people in the United States owning a smartphone and the
number of units shipped already topping 700 million, it is clear that this is a
large market. Consumers are continuing to switch to smart phones while those
who already own smartphones are upgrading to newer, faster and more complex
units. Granted, the individuals who already own smartphones are typically more
affluent and will be the ones upgrading. The share of the market that does not
have smartphones yet is typically lower income individuals. This data leads to
the conclusion that the U.S. smartphone market is beginning to mature but is
nowhere near fully penetrated. Although many individuals already own a
smartphone, more competition brings cheaper smartphones, appealing to more
of the market.
Following the rapid increase in smartphone growth, it is essential infrastructure
evolves with the growth. To meet record data traffic volumes, base stations and
cellular infrastructure must be upgraded. Due to the fact that there is a limited
UOIG 6
University of Oregon Investment Group
May 17, 2013
amount of spectrum, LTE and other expansion has been slowed with the concern
that it might overlap emergency services communications.
Figure 13: Global Mobile Data Traffic By Region
Source: Cisco VIN Mobile Forecast
Manufacturers are continuing to move operations abroad to take advantage of
lower wages and operating costs. Domestic industry revenues are expected to
fall 2.7% because of more efficient, lower-cost alternatives abroad. The rise of
foreign competition is leaving manufacturers in the U.S. with the need to
innovate constantly while offering products at a lower cost.
Emerging Markets
While U.S. smartphone growth is strong, emerging markets smartphone and
wireless infrastructure expansion is booming. Lower prices of manufacturing are
passed on to the customer with lower smartphone prices, thus driving the rapid
expansion. Smartphones are becoming increasingly available through retail
channels due to intense competition, especially in China and India. Smartphone
penetration in these two countries is extremely low and with low prices,
consumers are eager to get their hands on a smartphone. If manufacturers can
continue to lower their prices, demand for smartphones will increase even more.
This rapid growth brings a demand for quality mobile device inputs such as
filters and amplifiers. While many developing countries are still on the 2G
standard, countries such as China and India are rapidly expanding 3G/4G LTE
infrastructure in order to support the increase in data and voice traffic. This
provides an excellent opportunity for U.S. companies to step in and build these
networks.
Competition
Figure 14: 2012 International Revenue Breakdown
Other
31%
China 60%
Hong
Kong
9%
Source: TriQuint Semiconductor 2012 10-K
Competition in the semiconductor industry is intense and characterized by the
drive to release more efficient and higher-performing products along with short
product life cycles. Competition is heavily based on linearity, efficiency, price
and ability to deliver the product in a timely fashion. Whichever company offers
the best product at the lowest price wins the bid and component prices are bound
to fall in the future due to the aging of technology. Moore’s Law best describes
this concept by stating “the number of transistors that can be inexpensively
placed on a circuit board doubles every two years.” With that being said, it is
vital to heavily invest in research and development to not only stay ahead of
technology but also have the edge over competitors. If the investment in
research and development strategy is not executed, companies quickly lose their
market share and become obsolete. TriQuint’s main competition consists of
Avago Inc., Skyworks Solutions RF Micro Devices, Murata Manufacturing Co.,
along with many others. Although competition is fierce in the industry,
TriQuint’s ability to supply high volumes and manufacture solutions in-house
gives the company an upper hand over competition and ability to watch industry
trends.
Management and Employee Relations
Ralph Quinsey – President & Chief Executive Officer
Ralph Quinsey joined TriQuint in July 2002 as President and Chief Executive
Officer. From September 1999 to January 2002, Mr. Quinsey was with ON
Semiconductor, a manufacturer of semiconductors for a wide array of
applications, as Vice President and General Manager of the Analog Division. In
January 2011 Volterra Semiconductor Corporation, a leading provider of highperformance analog and mixed-signal power management semiconductors,
appointed Mr. Quinsey to its Board of Directors. Mr. Quinsey received a B.S.
UOIG 7
University of Oregon Investment Group
May 17, 2013
degree in electrical engineering from Marquette University. His compensation
for 2012 was equal to $543,000. – TriQuint Website
Steve Buhaly – Chief Financial Officer
Figure 15: Management EPS Guidance History
High
0.03
Low
2012 Q-1
$
2012 Q-2
$
$
2012 Q-3
$
0.02
$
2012 Q-4
$
0.03
$
2013 Q-1
$
(0.10) $
(0.12) $
Actual
0.01
0.01
Met
(0.15) $
(0.09)
Beat
(0.02) $
0.02
Met
0.04
Beat
(0.17)
Missed
0.01
$
Result
$
(0.14) $
Source: Factset
Steve Buhaly joined TriQuint Semiconductor as Chief Financial Officer in
September of 2007. Mr. Buhaly has more than 20 years of experience in finance
and operations. Mr. Buhaly received Bachelor of Science and Masters of
Business Administration degrees from the University of Washington. His
compensation for 2012 was equal to $390,000. – TriQuint Website
Management Guidance
With regards to guidance about revenue, management has been very consistent
and hit targets every quarter. Typically management gives a spread of $10-15
million and TriQuint consistently hits right in the middle. On the other hand,
guidance about EPS has been fairly consistent with the exception of this past
quarter. Q1 2013 was the first time that management significantly missed
estimates. Management does not give specific growth estimates for each
segment, rather macro factors that influence revenue.
Portfolio History
TriQuint is currently held in both the Tall Firs and Svigals' portfolio. The Tall
Firs holds 1150 shares (0.73% of the portfolio) with a cost basis $15,154.47 and
market value of $5,807.50 resulting in a (61.7%) return on investment. Currently
Tall Firs is underweight in technology sector so removal of TriQuint from the
portfolio would not help bring the groups allocations more in line with the 75%
S&P 500/25% Russell 2000 benchmark.
Figure 16: TriQuint 1-Year Stock Chart
25000000
$7.00
$6.00
20000000
$5.00
15000000
$4.00
$3.00
The Svigals’ portfolio holds 264 shares of TriQuint, which comprises 1.01% of
the overall portfolio. The cost basis is $3,381.58 and market value is $1,335.84
resulting in a (60.4%) return on investment. The Svigals’ portfolio is currently
overweight in the technology sector so selling the stake in TriQuint will help
bring allocations more in line to the benchmark of 50% S&P 500/50% Russell
2000.
TriQuint’s high beta and unstable growth is not succinct with the value tilt of
Tall Firs or the value and growth tilt of the Svigals’ portfolio. Recent
performance and outlook based upon the DCF and comparable analysis suggest
that TriQuint is not an ideal holding for either of the portfolios.
10000000
$2.00
5000000
Recent News
$1.00
$0.00
Apr-12
0
Jun-12
Aug-12
Volume
Oct-12
Adjusted Close
Dec-12
Feb-13
50-Day Avg
Source: Yahoo! Finance
Apr-13
200-Day Avg
“TriQuint Achieves Breakthrough GaN-on-Diamond Results”
Business Wire – April 30, 2013
TriQuint produced an industry first GaN transistor using GaN-on-diamond
wafers. This new technique allows new RF amplifiers to be 3 times smaller than
current amplifiers or 3 times more powerful than current GaN amplifiers. In
addition to reduced size, the amplifiers can operate at lower temperatures
without sacrificing performance. This breakthrough demonstrates TriQuint’s
industry leadership with the GaN technology.
UOIG 8
University of Oregon Investment Group
Figure 17: BlackBerry Z10
May 17, 2013
“The Suppliers Behind the BlackBerry Z10”
Morningstar – March 27, 2013
iFixit recently took apart the new BlackBerry Z10 and TriQuint supplied the
Dual Band WLAN module which allows connection to the latest Wi-Fi iteration
and provides users with faster downloads.
“TriQuint Expands Support of Optical Markets with New Transimpedance
Amplifier Family”
Business Wire - March 18, 2013
TriQuint expanded their optical infrastructure portfolio by releasing five new
transimpedance amplifiers (TIA), allowing them to serve the transmission and
receiving portions of high performance optical networks. Optical networks are
the most economical option for long-distance, high-speed data transfer. With
this market growing rapidly, TriQuint is poised to take advantage of the growth
with these TIAs and other optical network products.
Catalysts
Source: Google Images
Upside




Figure 18: Business Wire Logo

Expanding global smartphone market with only 20% penetration
provides large opportunity for high-volume suppliers
As a Foxconn supplier, TriQuint can ride the coattails of Apple and it’s
highly successful iPhone
Necessity for infrastructure expansion in emerging markets
Major design wins from OEMs such as Samsung, BlackBerry and
Chinese manufacturers
Increased spectrum crowding is resulting in rapidly expanding demand
for premium filters
Downside
Source: Google Images




Inability to efficiently manage capacity and factories
Heavy capital expenditures may prove not be worthwhile if demand
does not meet or exceed expectations
Inability to land key contracts due to increasing competition may
significantly reduce revenues
Decreasing demand from largest customer threatens revenue
Comparable Analysis
Figure 19: TriQuint High-Performance BAW/TC-SAW Filter
Comparable companies were screened on beta, enterprise value, growth rates,
similar product offerings and global exposure. All of the comparable companies,
along with TriQuint are debt free. Unusual swings in EBITDA and EPS growth
rates made finding comparable companies extremely difficult. In certain cases,
an average growth rate over 2013-2014 was taken to help find possible
comparable companies.
M/A-Com Technology Solutions Holdings, Inc. – 30%
Source: TriQuint Website
“M/A-Com Technology Solutions Holdings, Inc., through its subsidiaries,
provides analog semiconductor solutions for use in wireless and wire line
applications across the radio frequency, microwave, and millimeter wave
spectrum. It offers 38 product lines with a portfolio of approximately 3,000
UOIG 9
University of Oregon Investment Group
Figure 20: M/A Com Technology Solutions Holdings, Inc. Logo
Source: Google Images
May 17, 2013
standard and custom devices, integrated circuits, multi-chip modules, and
complete subsystems. It serves approximately 6,000 end customers, such as
systems manufacturers, original equipment manufacturers, contract
manufacturers, and distributors in 3 primary markets, including networks, which
comprise cable television, cellular backhaul, cellular infrastructure, and fiber
optic applications; aerospace and defense; and multi-markets consisting of
automotive, industrial, medical, mobile, and scientific applications. The
company sells its products and solutions through direct sales force, applications
engineering staff, independent sales representatives, and authorized distributors
primarily in the United States, Asia, and Australia. The company was
incorporated in 2009 and is headquartered in Lowell, Massachusetts.” – Yahoo
Finance
M/A-Com Technology Solutions Holdings, Inc. was chosen as a comparable
because of similar growth rates and product line. In addition, M/A-Com
Technology Solutions Holdings, Inc. has a “fab-lite” strategy which is similar to
TriQuint’s foundry but this strategy allows the company to outsource
manufacturing in the case of overwhelming demand. Similar size, similar
revenue structure and growth rates along with global exposure make M/A-Com
Technology a strong comparable.
Hittite Microwave Corporation – 30%
Figure 21: Hittite Microwave Corporation Logo
Source: Google Images
“Hittite Microwave Corporation designs, develops, and sells integrated circuits
(ICs), modules, subsystems, and instrumentation products for radio frequency
(RF) microwave and millimeter wave applications worldwide. It serves
automotive, broadband, cellular infrastructure, fiber optic, microwave and
millimeter wave communications, military, space, and test and measurement
markets. The company sells its products through direct sales force and
applications engineering staff, sales representatives, and distributors, as well as
through its Website. Hittite Microwave Corporation was founded in 1985 and is
headquartered in Chelmsford, Massachusetts.” – Yahoo Finance
Hittite Microwave Corporation was chosen as a comparable primarily due to
similar revenue structure and growth rates. Although Hittite Microwave
Corporation does not serve the mobile devices end market, they focus on serving
all other end markets that TriQuint offers products to. Similar levels of revenue
and EBITDA growth along with global exposure resulted in Hittite Microwave
Corporation being one of the stronger comparables.
Avago Technologies Limited – 25%
Figure 22: Avago Technologies Logo
Source: Google Images
“Avago Technologies Limited engages in the design, development, and supply
of analog semiconductor devices with a focus on III-V based products.. The
company’s products are used in cellular phones, consumer appliances, data
networking and telecommunications equipment, enterprise storage and servers,
factory automation, displays, voice and data communications, camera phones,
keypad and display backlighting, backlighting control, base stations, data
communications, storage area networking, servers, core routing and transport,
in-car infotainment, displays, lighting, factory automation, motor controls,
power isolation, and renewable energy systems applications. The company sells
products to original equipment manufacturers of wireless communications,
wired infrastructure, industrial and automotive electronics, and consumer and
computing peripherals markets. Avago Technologies Limited was founded in
2005 and is based in Singapore.” – Yahoo Finance
UOIG 10
University of Oregon Investment Group
Figure 23: RF Micro Devices Logo
May 17, 2013
Avago Technologies was chosen as a comparable due closely related product
lines and similar global exposure. TriQuint does not serve as many end markets
as Avago Technologies but because the Avago’s end market contains all the
target markets of TriQuint, both will respond similarly to macro/micro events,
regardless of size. Although there is less systematic risk, comparable revenue
growth rates made Avago Technologies a solid comparable.
RF Micro Devices – 15%
Source: Google Images
Figure 24: TriQuint Mobile Devices Revenue
900
800
Dollars ($M)
700
600
“RF Micro Devices, Inc. designs, develops, manufactures, and markets radio
frequency (RF) components and compound semiconductor technologies
primarily in the United States and Asia. Its products enable mobility, as well as
provide connectivity and support functionality in the mobile devices, wireless
infrastructure, wireless local area networks, cable television /broadband, Smart
Energy/advanced metering infrastructure, and aerospace and defense markets.
The company markets its products to original equipment manufacturers and
original design manufacturers. RF Micro Devices, Inc. was founded in 1991 and
is headquartered in Greensboro, North Carolina.” – Yahoo Finance
Although weighted the least, RF Micro Devices was chosen as a comparable due
to similar revenue structure, global exposure and foundry services. RF Micro
Devices supplies products to identical markets and will capture the same
growth/experience the same risk as TriQuint. In addition, RF Micro Devices
faces the same risk and competition as TriQuint but the extremely different
growth rates and margins created difficulty when weighting, therefore it was
given a lower weighting.
500
Discounted Cash Flow Analysis
400
300
200
Revenue Model
100
Revenue was broken down by operating segment and projected forward based
on respective segment revenue drivers and industry trends in addition to
management guidance.
0
Source: UOIG Spreads
Figure 25: TriQuint Networks Revenue
350
Mobile Devices
The mobile devices operating segment is the largest of the 3 and has the most
potential for growth. 3G/4G revenue was projected to grow at rapid rates,
especially in 2013 and 2014 per management guidance and consensus estimates.
In addition to that growth, this segment will grow as a percentage of revenue
into perpetuity as the 2G sub-segment percentage of revenue continues to
decline. Although 2G is becoming somewhat obsolete in first world countries,
developing countries are now using this standard. Connectivity was projected at
similar growth rates as the 3G/4G sub-segment but on a smaller scale. As
smartphone usage increases, connectivity products such as Bluetooth® and
Wireless Local Area Network (WLAN) will increase as well because these
products are synonymous with smartphones.
300
Networks
Despite weak Q1 growth, radio access was projected at higher growth
throughout the rest of 2013 and 2014 per management guidance. The driving
force behind this growth is the need to expand and upgrade wireless
infrastructure to support the growth in data and voice traffic, both in the United
States as well as globally. Management guidance predicted slow growth in the
transport sub-segment but Q1 was contradictory. Revenues were projected
forward mainly with guidance but keeping some of the momentum from Q1
Dollars ($M)
250
200
150
100
50
0
Source: UOIG Spreads
UOIG 11
University of Oregon Investment Group
May 17, 2013
going as well. Multi-market revenues were projected as a percentage of revenue
while factoring in automotive market trends.
Defense & Aerospace (D&A)
Plagued with uncertainty from federal defense spending, conservative
projections were made per management guidance while management said they
had taken this uncertainty into account before giving the guidance. D&A
revenues comprise mainly of contract work for suppliers of the United States
government and therefore can fluctuate significantly due to timing of
government programs. Revenues were projected to keep a consistent percentage
of revenue, which is high in 2013 and 2014 but trends toward historical averages
into perpetuity.
Figure 26: TriQuint Defense & Aerospace Revenue
160
140
Dollars ($M)
120
100
80
60
Beta
Multiple regressions were run against the S&P 500 to capture the volatility of
TriQuint over different periods of time. Included in a final weighted average
beta were the 5-year weekly, 3-year weekly, 3-year daily and 1-year daily data
points regressed against the S&P 500. The 3-year Vasicek beta was included as
well to capture market volatility.
40
20
0
Source: UOIG Spreads
Cost of Goods Sold
Cost of goods sold consists primarily of equipment and engineering/design costs
related to revenue on nonrecurring engineering services. Despite high Q1 cost of
goods sold, it was trended back toward the historical average into perpetuity.
Beta
SD
Weighting
5 Year Weekly
1.96
0.14
20.00%
3 Year Weekly
1.81
0.21
30.00%
3 Year Daily
1.47
0.10
30.00%
1 Year Daily
1.72
0.20
10.00%
Vasicek 3 Year Daily
1.41
TriQuint Semiconductor, Inc. Beta
1.69
10.00%
Research and Development
Research and development is a key expense in the semiconductor industry that
keeps companies competitive. R&D was projected above historical average for
2013-2014 but trended down toward the average into perpetuity. With the
increase of competition, especially from overseas, R&D was kept at a higher
level than historical averages for TriQuint to continue to release more efficient
products at a lower price.
Selling, General and Administrative Expenses
Due to little management guidance, SG&A was projected forward based on
percentage of revenue in historical years. Inability to manage factory capacity as
seen in 2010/2011 was taken into consideration when projecting cost of goods
sold into perpetuity.
Depreciation and Amortization
TriQuint uses the straight-line method across different time periods for
machinery and equipment, building improvements and buildings. In order to
project depreciation and amortization more accurately, it was projected as a
percent of PP&E based on historical capacity errors.
Intermediate Growth Rate
Year
Unlevered FCF
Discounted FCF
Growth Rate
2019E
2020E
2021E
2022E
2023E
$65.60
$71.51
$77.23
$82.63
$86.76
$31.83
10.0%
$31.17
$30.25
$29.08
9.0%
8.0%
7.0%
Acquisitions
Typically TriQuint has made acquisitions with positive or near-positive free
cash flows. Much of TriQuint’s growth and strength as a company has come
from key acquisitions so until they generate positive free cash flows, there were
no acquisitions projected, putting the company at more risk from a historical
standpoint. Once positive free cash flows were generated, acquisitions were
projected as a percent of revenue, trending toward the historical average.
$27.43
5.0%
Intermediate Growth Rate
An intermediate growth rate was used to trend down growth in 2018, which was
11%, down to 5% in the terminal year.
UOIG 12
University of Oregon Investment Group
May 17, 2013
Net Working Capital
Net working capital was projected as a percent of revenue and adjusted
accordingly to any management guidance given.
Capital Expenditures
Capital expenditures were projected per management guidance. TriQuint is
increasing manufacturing capacity for BAW filters throughout 2013. Into
perpetuity, capital expenditures were trended down to a more historical average
based on a percentage of revenue.
Final Price
DCF PriceTarget
Comparables Analysis Price Target
Price Target
Current Price
Overvalued
Implied Price Weight
$
3.33 60.00%
$
6.62 40.00%
$4.64
5.91
(21.42%)
Tax Rate
Inability to have consistent earnings before taxes historically causes TriQuint to
have irregular provisions/benefits for income taxes, again resulting in a nonindustry conforming tax rate. Using comparables and other companies within
the semiconductor industry, an average tax rate was found. Once TriQuint
increases revenues and gross margin, resulting in a significant EBIT, the tax rate
is trended toward the industry average into perpetuity.
Recommendation
I recommend a sell for both the Tall Firs and Svigals’ portfolios based on an
overvaluation of the stock. The decision is based off a 60% DCF valuation and
40% comparables valuation because I believe the DCF more accurately
represents TriQuint’s progress looking forward than the comparable analysis.
TriQuint’s inability to manage supply and demand combined with decreasing
demand from large customers further proves that our position should be sold.
UOIG 13
University of Oregon Investment Group
May 17, 2013
Appendix 1 – Comparables Analysis
Forward Comparables Analysis: 2013
TQNT
TriQuint
Semiconductor,
Inc.
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$56.62
1.69
Min
$5.67
0.88
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
1.00
2.00
1,151.00
0.00
0.00
279.59
8,410.18
7,262.18
0.00
0.00
92.75
0.00
0.00
31.59
632.87
540.11
0.00
0.00
261.43
0.00
0.00
149.95
1,686.51
1,425.08
Growth Expectations
% Revenue Growth 2013E
% Revenue Growth 2014E
% EBITDA Growth 2013E
% EBITDA Growth 2014E
% EPS Growth 2013E
% EPS Growth 2014E
24.90%
12.40%
175.70%
32.40%
118.50%
337.50%
1.40%
9.52%
-4.80%
8.20%
-740.00%
12.30%
73.21%
40.76%
43.84%
25.72%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$23.61
$30.32
1.06
1.06
MTSI
M/A-Com
Technology
Solutions
Holdings, Inc.
HITT
AVGO
RFMD
Hittite
Microwave
Corporation
Avago Inc.
RF Micro
Devices Inc.
$5.95
1.69
30.00%
$13.60
1.15
30.00%
$56.62
0.96
25.00%
$33.62
0.88
0.25
0.50
455.39
0.00
0.00
128.72
3,066.52
2,611.89
0.00
0.00
139.00
0.00
0.00
171.04
912.03
773.03
0.00
0.00
92.75
0.00
0.00
46.61
632.87
540.11
0.00
0.00
409.20
0.00
0.00
31.59
1,787.77
1,378.57
1.00
2.00
1,151.00
0.00
0.00
253.29
8,410.18
7,262.18
0.00
0.00
113.67
0.00
0.00
279.59
1,585.25
1,471.58
5.30%
11.30%
1.00%
14.35%
2.40%
22.95%
7.27%
11.40%
25.76%
15.21%
17.97%
22.55%
4.92%
9.52%
29.82%
13.70%
-740.00%
337.50%
5.00%
11.80%
-1.00%
8.20%
0.40%
33.20%
5.60%
12.40%
3.00%
14.30%
4.40%
17.50%
1.40%
10.80%
-4.80%
14.40%
-5.00%
12.30%
24.90%
9.60%
175.70%
32.40%
118.50%
28.40%
35.88%
(2.08%)
10.00%
(1.48%)
47.47%
21.93%
27.20%
17.87%
53.31%
25.10%
29.86%
17.86%
40.74%
-2.08%
10.00%
-1.48%
44.67%
18.78%
22.13%
12.20%
73.21%
40.76%
43.84%
25.72%
50.27%
25.07%
32.26%
23.53%
35.88%
6.48%
13.37%
3.99%
$9.57
0.00
0.00
136.19
$0.00
0.00
0.00
0.00
$0.26
0.00
0.00
8.41
$1.59
0.00
0.00
43.38
$2.90
0.00
0.00
30.01
$0.51
0.00
0.00
136.19
$0.00
0.00
0.00
0.00
$0.00
0.00
0.00
0.00
$9.57
0.00
0.00
16.83
$2,393.00
$1,203.00
$600.00
$772.00
$563.00
$242.00
$279.20
$141.30
($18.08)
$70.00
($12.91)
$0.00
$760.15
$318.20
$95.90
$141.70
$59.90
$28.60
$957.50
$469.26
$213.66
$274.87
$181.07
$70.61
$869.96
$354.39
($18.08)
$87.00
($12.91)
$99.32
$316.30
$141.30
$59.40
$70.00
$38.60
$10.20
$279.20
$204.40
$113.80
$122.40
$71.80
$0.00
$2,393.00
$1,203.00
$600.00
$772.00
$563.00
$242.00
$1,204.00
$432.00
$78.00
$161.00
$48.00
$47.00
4.94x
6.74x
18.87x
11.26x
13.70x
33.03x
0.89x
2.18x
(42.76x)
7.72x
(62.75x)
(70.63x)
2.37x
4.93x
12.11x
9.27x
12.09x
20.65x
2.94x
5.19x
12.22x
9.42x
11.45x
21.08x
0.89x
2.18x
-42.76x
8.89x
-62.75x
-70.63x
1.71x
3.82x
9.09x
7.72x
9.03x
16.40x
4.94x
6.74x
12.11x
11.26x
11.26x
24.90x
3.03x
6.04x
12.10x
9.41x
13.70x
14.94x
1.22x
3.41x
18.87x
9.14x
12.91x
33.03x
Multiple
EV/Revenue
EV/EBITDA
Price Target
Current Price
Undervalued
Implied Price
Weight
15.74
5.60
$6.62
5.95
11.21%
10.00%
90.00%
UOIG 14
15.00%
$5.67
1.37
University of Oregon Investment Group
May 17, 2013
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2008A
573.43
% YoY Growth
Cost of Goods Sold
352.24
2009A
2010A
2012A
Q1
Q2
Q3
Q4
03/31/2013A
06/30/2013E
09/30/2013E
12/31/2013E
2013E
Q1
Q2
Q3
Q4
03/31/2014E
06/30/2014E
09/30/2014E
12/31/2014E
2015E
2016E
2017E
2018E
654.30
878.70
896.08
829.17
184.20
194.68
223.36
267.72
$869.96
196.67
210.59
248.58
296.96
$952.79
$1,038.76
$1,118.49
$1,187.81
1,268.47
14.10%
34.30%
1.98%
(7.47%)
(15.01%)
9.37%
11.22%
14.60%
4.92%
6.77%
8.17%
11.29%
10.92%
9.52%
9.02%
7.68%
6.20%
6.79%
398.78
473.21
508.13
495.03
119.80
113.40
128.43
153.94
515.57
114.07
123.20
146.66
176.69
560.61
607.67
648.72
682.99
723.03
`
2011A
2014E
% Revenue
61.43%
60.95%
53.85%
56.71%
59.70%
65.04%
58.25%
57.50%
57.50%
59.26%
58.00%
58.50%
59.00%
59.50%
58.84%
58.50%
58.00%
57.50%
57.00%
Gross Profit
$221.19
$255.52
$405.49
$387.96
$334.14
$64.40
$81.28
$94.93
$113.78
$354.39
$82.60
$87.40
$101.92
$120.27
$392.18
$431.09
$469.77
$504.82
$545.44
Gross Margin
38.57%
39.05%
46.15%
43.29%
40.30%
34.96%
41.75%
42.50%
42.50%
40.74%
42.00%
41.50%
41.00%
40.50%
41.16%
41.50%
42.00%
42.50%
43.00%
72.63
78.40
96.09
96.78
106.64
27.26
23.36
23.45
26.77
100.85
22.62
23.16
29.83
34.15
109.76
119.46
128.63
130.66
139.53
12.67%
11.98%
10.94%
10.80%
12.86%
14.80%
12.00%
10.50%
10.00%
11.59%
11.50%
11.00%
12.00%
11.50%
11.52%
11.50%
11.50%
11.00%
11.00%
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% PP&E
Research, Development & Engineering
% Revenue
Other Expenses
35.23
46.94
54.66
66.02
96.55
25.63
26.30
26.15
27.00
105.08
25.40
23.95
21.66
21.70
92.71
91.40
90.26
90.17
89.50
12.86%
14.45%
12.11%
15.19%
22.02%
5.85%
6.04%
6.06%
6.30%
24.84%
6.14%
5.88%
5.34%
5.34%
23.82%
23.52%
23.07%
22.76%
21.93%
91.48
109.45
129.25
146.90
160.48
46.07
36.99
37.97
45.51
166.54
38.35
40.01
47.23
57.91
183.50
192.17
201.33
201.93
209.30
15.95%
16.73%
14.71%
16.39%
19.35%
25.01%
19.00%
17.00%
17.00%
19.14%
19.50%
19.00%
19.00%
19.50%
19.26%
18.50%
18.00%
17.00%
16.50%
35.74
4.11
9.36
19.22
7.55
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
6.23%
.63%
1.07%
2.15%
.91%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Earnings Before Interest & Taxes
($13.88)
$16.63
$116.14
$59.03
($29.53)
($34.56)
($5.37)
$7.35
$14.50
($18.08)
($3.77)
$0.27
$3.20
$6.51
$6.21
$28.06
$49.55
$82.06
$107.11
% Revenue
(2.42%)
2.54%
13.22%
6.59%
(3.56%)
(18.76%)
(2.76%)
3.29%
5.42%
(2.08%)
(1.92%)
.13%
1.29%
2.19%
.65%
2.70%
4.43%
6.91%
8.44%
0.55
0.98
1.12
1.57
2.11
1.14
0.00
0.00
0.00
1.14
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
.10%
.15%
.13%
.17%
.25%
.62%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
% Revenue
Interest Expense
% Revenue
Interest Income
% Revenue
Earnings Before Taxes
4.20
0.81
0.38
0.29
7.20
0.04
0.00
0.00
0.00
0.04
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
.73%
.12%
.04%
.03%
.87%
.02%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
(10.23)
16.45
115.40
57.75
(24.45)
(35.66)
(5.37)
7.35
14.50
(19.18)
(3.77)
0.27
3.20
6.51
6.21
28.06
49.55
82.06
107.11
(1.78%)
2.51%
13.13%
6.45%
(2.95%)
(19.36%)
(2.76%)
3.29%
5.42%
(2.20%)
(1.92%)
.13%
1.29%
2.19%
.65%
2.70%
4.43%
6.91%
8.44%
2.75
0.41
(74.31)
10.82
(5.71)
(8.00)
(0.27)
0.55
1.45
(6.27)
(0.56)
0.04
0.54
1.30
1.32
5.61
10.90
18.05
25.71
(19.83%)
2.44%
(63.98%)
18.33%
19.32%
23.15%
5.00%
7.50%
10.00%
34.68%
15.00%
15.00%
17.00%
20.00%
21.27%
20.00%
22.00%
22.00%
24.00%
Net Income
($12.99)
$16.05
$189.70
$46.93
($18.74)
($27.66)
($5.10)
$6.80
$13.05
($12.91)
($3.20)
$0.23
$2.65
$5.21
$4.89
$22.45
$38.65
$64.01
$81.41
Net Margin
(2.26%)
2.45%
21.59%
5.24%
(2.26%)
(15.02%)
(2.62%)
3.05%
4.87%
(1.48%)
(1.63%)
.11%
1.07%
1.75%
.51%
2.16%
3.46%
5.39%
6.42%
Add Back: Depreciation and Amortization
35.23
46.94
54.66
66.02
96.55
25.63
26.30
26.15
27.00
105.08
25.40
23.95
21.66
21.70
92.71
91.40
90.26
90.17
89.50
Add Back: Interest Expense*(1-Tax Rate)
0.66
0.96
1.83
1.28
1.70
0.88
0.00
0.00
0.00
0.75
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
22.90
63.95
246.19
114.23
79.51
(1.15)
21.20
32.95
40.05
92.91
22.20
24.18
24.31
26.91
97.60
113.85
128.91
154.18
170.91
13.47%
% Revenue
Less Taxes (Benefits)
Tax Rate
Operating Cash Flow
% Revenue
3.99%
9.77%
28.02%
12.75%
9.59%
(.63%)
10.89%
14.75%
14.96%
10.68%
11.29%
11.48%
9.78%
9.06%
10.24%
10.96%
11.53%
12.98%
Current Assets
296.16
204.31
322.73
335.34
340.83
316.45
284.23
316.05
368.39
368.39
279.27
297.99
339.31
398.67
398.67
404.18
424.24
441.75
468.70
51.65%
31.23%
36.73%
37.42%
41.10%
171.80%
146.00%
141.50%
137.60%
42.35%
142.00%
141.50%
136.50%
134.25%
41.84%
38.91%
37.93%
37.19%
36.95%
% Revenue
Current Liabilities
69.33
82.72
127.25
106.23
113.77
127.40
107.56
106.65
121.81
121.81
98.34
93.71
113.10
132.15
132.15
142.83
156.59
168.67
185.83
% Revenue
12.09%
12.64%
14.48%
11.86%
13.72%
69.17%
55.25%
47.75%
45.50%
14.00%
50.00%
44.50%
45.50%
44.50%
13.87%
13.75%
14.00%
14.20%
14.65%
Net Working Capital
$226.82
$121.59
$195.48
$229.11
$227.05
$189.05
$176.67
$209.40
$246.57
$246.57
$180.94
$204.27
$226.20
$266.52
$266.52
$261.35
$267.65
$273.08
$282.87
% Revenue
39.56%
18.58%
22.25%
25.57%
27.38%
102.63%
90.75%
93.75%
92.10%
28.34%
92.00%
97.00%
91.00%
89.75%
27.97%
25.16%
23.93%
22.99%
22.30%
($105.24)
73.89
33.634
-2.061
($38.01)
($12.37)
$32.73
$37.18
$19.52
($65.64)
$23.34
$21.93
$40.31
$19.94
($5.17)
$6.30
$5.42
$9.79
87.57
48.56
105.76
192.38
75.28
29.53
23.36
22.34
24.10
99.32
15.73
17.90
19.89
22.27
75.79
80.50
83.89
86.12
91.96
15.27%
7.42%
12.04%
21.47%
9.08%
16.03%
12.00%
10.00%
9.00%
11.42%
8.00%
8.50%
8.00%
7.50%
7.95%
7.75%
7.50%
7.25%
7.25%
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
61.75
7.98
0.00
0.00
4.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
10.39
8.95
8.91
9.51
% Revenue
10.77%
1.22%
0.00%
0.00%
.54%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1.00%
.80%
.75%
0.75%
Unlevered Free Cash Flow
(126.42)
112.65
66.54
(111.78)
1.80
7.32
10.21
(22.11)
(21.22)
(25.93)
72.10
(17.06)
(17.50)
(35.68)
1.86
28.12
29.77
53.73
59.64
9.94
(20.96)
(19.58)
64.77
(14.92)
(14.90)
(29.58)
20.94
19.92
32.29
32.20
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.75
3.75
4.75
5.75
Discounted Free Cash Flow
Discounting Periods
EBITDA
EBITDA Margin
EBITDA Growth
0
21.3
63.6
170.8
125.1
67.0
-8.9
20.9
33.5
41.5
87.0
21.6
24.2
24.9
28.2
98.9
119.5
139.8
172.2
196.6
3.72%
9.72%
19.44%
13.96%
8.08%
-4.85%
10.75%
15.00%
15.50%
10.00%
11.00%
11.50%
10.00%
9.50%
10.38%
11.50%
12.50%
14.50%
15.50%
168.67%
-26.78%
-46.41%
-186.85%
1673.57%
257.18%
306.84%
29.82%
-342.32%
15.72%
-25.81%
-32.02%
13.70%
20.76%
17.04%
23.19%
14.16%
UOIG 15
University of Oregon Investment Group
May 17, 2013
Appendix 3 – Revenue Model
Mobile Devices Revenue
($ in millions)
3G/4G
2010A
388.37
% Growth
% of Total Revenue
2G
44.20%
95.60
Connectivity
Total Mobile Device Revenue
Q1
Q2
Q3
Q4
03/31/2013A
06/30/2013E
09/30/2013E
12/31/2013E
2013E
Q1
Q2
Q3
Q4
03/31/2014E
06/30/2014E
09/30/2014E
12/31/2014E
2014E
2015E
2016E
2017E
2018E
467.90
424.00
84.30
98.87
120.96
140.31
444.44
89.78
107.77
137.90
158.55
494.00
548.34
597.69
639.52
20.48%
(9.38%)
(29.38%)
14.50%
18.50%
21.50%
4.82%
6.50%
9.00%
14.00%
13.00%
11.15%
11.00%
9.00%
7.00%
690.69
8.00%
52.22%
51.13%
45.77%
50.79%
54.16%
52.41%
51.09%
45.65%
51.17%
55.48%
53.39%
51.85%
52.79%
53.44%
53.84%
54.45%
37.80
21.70
2.70
2.69
2.82
2.94
11.15
2.03
2.16
2.40
2.55
9.13
7.76
6.75
6.08
5.77
(42.59%)
(70.97%)
(40.00%)
(40.00%)
(20.00%)
(48.62%)
(25.00%)
(20.00%)
(15.00%)
(13.00%)
(18.10%)
(15.00%)
(13.00%)
(10.00%)
(5.00%)
10.88%
4.22%
2.62%
1.47%
1.38%
1.26%
1.10%
1.28%
1.03%
1.02%
.96%
.86%
.96%
.75%
.60%
.51%
.46%
113.53
128.80
92.60
18.50
22.27
21.06
35.73
97.56
19.43
24.27
23.17
39.12
105.99
115.53
123.61
131.03
138.89
% Growth
% of Total Revenue
2012A
(60.46%)
% Growth
% of Total Revenue
2011A
13.45%
(28.11%)
(3.44%)
4.50%
8.00%
9.50%
5.36%
5.00%
9.00%
10.00%
9.50%
8.64%
9.00%
7.00%
6.00%
6.00%
12.92%
14.37%
11.17%
10.04%
11.44%
9.43%
13.35%
11.21%
9.88%
11.53%
9.32%
13.18%
11.12%
11.12%
11.05%
11.03%
10.95%
597.50
634.50
538.30
105.50
123.83
144.84
178.97
553.15
111.23
134.20
163.46
200.23
609.12
671.63
728.05
776.63
835.35
6.19%
(15.16%)
(28.96%)
10.43%
14.05%
17.92%
2.76%
5.43%
8.37%
12.85%
11.87%
10.12%
10.26%
8.40%
6.67%
7.56%
% Growth
Network Revenue
Radio Access
67.66
60.30
65.20
18.90
12.47
19.22
19.26
69.85
21.36
14.21
21.72
21.86
79.16
87.86
96.21
103.91
112.22
(10.88%)
8.13%
.53%
12.00%
8.00%
12.00%
7.14%
13.00%
14.00%
13.00%
13.50%
13.32%
11.00%
9.50%
8.00%
8.00%
7.70%
6.73%
7.86%
10.26%
6.40%
8.61%
7.20%
8.03%
10.86%
6.75%
8.74%
7.36%
8.31%
8.46%
8.60%
8.75%
8.85%
86.99
89.30
97.10
24.90
27.84
26.50
26.61
105.85
26.52
29.51
27.96
28.21
112.19
117.80
123.69
129.25
135.07
2.66%
8.73%
19.71%
6.00%
6.00%
7.00%
9.01%
6.50%
6.00%
5.50%
6.00%
5.99%
5.00%
5.00%
4.50%
4.50%
9.97%
11.71%
13.52%
14.30%
11.86%
9.94%
12.17%
13.48%
14.01%
11.25%
9.50%
11.77%
11.34%
11.06%
10.88%
10.65%
% Growth
% of Total Revenue
Transport
% Growth
% of Total Revenue
Multi-Market
9.90%
38.66
% Growth
28.80
30.40
7.40
7.48
7.35
9.21
31.44
8.14
8.22
8.085
10.13
34.58
36.66
38.86
40.41
42.03
(25.50%)
5.56%
(5.13%)
5.00%
5.00%
6.50%
3.42%
10.00%
10.00%
10.00%
10.00%
10.00%
6.00%
6.00%
4.00%
4.00%
% of Total Revenue
4.40%
3.21%
3.67%
4.02%
3.84%
3.29%
3.44%
3.61%
4.14%
3.91%
3.25%
3.41%
3.63%
3.53%
3.47%
3.40%
3.31%
Total Network Revenue
193.31
178.40
192.70
51.20
47.78
53.07
55.09
207.14
56.02
51.94
57.77
60.21
225.93
242.32
258.75
273.57
289.32
(7.71%)
8.02%
7.38%
7.36%
6.57%
8.61%
7.49%
9.41%
8.71%
8.84%
9.29%
9.07%
7.26%
6.78%
5.73%
5.76%
143.80
% Growth
Defense/Aerospace Revenue
Total Defense/Aerospace Revenue
87.87
% Growth
% of Total Revenue
Total Operational Revenue
% YoY Growth
10.00%
878.68
83.20
98.20
27.50
23.07
25.44
33.66
109.67
29.425
24.45
27.35
36.53
117.75
124.82
131.68
137.61
(5.31%)
18.03%
32.21%
8.00%
6.00%
8.00%
11.68%
7.00%
6.00%
7.50%
8.50%
7.37%
6.00%
5.50%
4.50%
4.50%
9.28%
11.84%
14.93%
11.85%
11.39%
12.57%
12.61%
14.96%
11.61%
11.00%
12.30%
12.36%
12.02%
11.77%
11.58%
11.34%
896.10
1.98%
829.20
(7.47%)
184.20
(15.01%)
194.68
9.37%
223.36
11.22%
267.72
14.60%
869.96
4.92%
196.67
6.77%
210.59
8.17%
248.58
296.96
11.29%
UOIG 16
10.92%
952.79
9.52%
1038.76
9.02%
1118.49
7.68%
1187.81
6.20%
1268.47
6.79%
University of Oregon Investment Group
May 17, 2013
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
2009A
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expenses Outstanding
% of Revenue
Deferred Tax
Days Deferred Tax Outstanding
% of Revenue
Other Current Assets
Days Outstanding
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Payroll
Days Charges Outstanding
% of Revenue
Other Accrued Liabilities
% of Revenue
Total Current Liabilities
% of Revenue
$
$
$
2010A
2011A
2012A
Q1
Q2
Q3
Q4
03/31/2013A
06/30/2013E
09/30/2013E
12/31/2013E
$210.59
$248.58
$296.96
2016E
2017E
2018E
$1,118.49
$1,187.81
$1,268.47
129.10
52.59
14.41%
151.58
108.88
16.92%
7.05
2.87
0.79%
11.86
4.83
1.32%
35.76
14.56
3.99%
335.34 $
37.42%
132.73
58.59
16.01%
138.25
102.21
16.67%
8.94
3.95
1.08%
12.53
5.53
1.51%
48.38
21.36
5.83%
340.83 $
41.10%
106.08
51.83
57.59%
136.77
102.75
74.25%
11.51
5.62
6.25%
13.30
6.50
7.22%
48.80
23.84
26.49%
316.45 $
171.80%
106.10
49.60
54.50%
116.81
93.73
60.00%
4.87
2.28
2.50%
11.68
5.46
6.00%
44.78
20.93
23.00%
284.23 $
146.00%
119.50
49.22
53.50%
136.25
97.60
61.00%
6.70
2.76
3.00%
11.17
4.60
5.00%
42.44
17.48
19.00%
316.05 $
141.50%
143.23
49.22
53.50%
160.63
96.00
60.00%
8.03
2.76
3.00%
10.98
3.77
4.10%
45.51
15.64
17.00%
368.39 $
137.60%
143.23
60.09
16.46%
160.63
113.72
18.46%
8.03
3.37
0.92%
10.98
4.61
1.26%
45.51
19.10
5.23%
368.39 $
42.35%
107.19
49.05
54.50%
116.04
91.55
59.00%
7.87
3.60
4.00%
8.85
4.05
4.50%
39.33
18.00
20.00%
279.27 $
142.00%
116.88
50.51
55.50%
125.30
92.56
59.50%
6.32
2.73
3.00%
9.48
4.10
4.50%
40.01
17.29
19.00%
297.99 $
141.50%
134.23
49.68
54.00%
149.15
93.56
60.00%
7.46
2.76
3.00%
8.70
3.22
3.50%
39.77
14.72
16.00%
339.31 $
136.50%
160.36
49.68
54.00%
175.20
91.23
59.00%
7.42
2.30
2.50%
11.14
3.45
3.75%
44.54
13.80
15.00%
398.67 $
134.25%
160.36
61.43
16.83%
175.20
114.07
18.39%
7.42
2.84
0.78%
11.14
4.27
1.17%
44.54
17.06
4.68%
398.67 $
41.84%
166.20
58.56
16.00%
176.59
106.36
17.00%
7.89
2.78
0.76%
11.95
4.21
1.15%
41.55
14.64
4.00%
404.18 $
38.91%
178.96
58.40
16.00%
184.55
103.84
16.50%
8.39
2.74
0.75%
13.20
4.31
1.18%
39.15
12.78
3.50%
424.24 $
37.93%
184.11
56.58
15.50%
193.02
103.15
16.25%
8.91
2.74
0.75%
14.13
4.34
1.19%
41.57
12.78
3.50%
441.75 $
37.19%
190.27
54.75
15.00%
209.30
105.66
16.50%
9.51
2.74
0.75%
15.22
4.38
1.20%
44.40
12.78
3.50%
468.70
36.95%
264.25
48.56
7.98
46.94
273.85
478.16 $
41.85%
273.85
105.76
0.00
54.66
324.95
647.68 $
36.98%
324.95
192.38
0.00
66.02
451.31
786.66 $
50.36%
451.31
75.28
4.50
96.56
434.54
775.36 $
52.40%
434.54
29.53
0.00
(25.63)
438.44
754.88 $
238.02%
438.44
23.36
0.00
(26.30)
435.50
719.73 $
223.70%
435.50
22.34
0.00
(26.15)
431.68
747.74 $
193.27%
431.68
24.10
0.00
(27.00)
428.78
797.17 $
160.16%
434.54
99.32
0
(105.08)
428.78
797.17 $
49.29%
428.78
15.73
0
(25.40)
419.11
698.38 $
213.10%
419.11
17.90
0
(23.95)
413.06
711.05 $
196.14%
413.06
19.89
0
(21.66)
411.29
750.59 $
165.46%
411.29
22.27
0
(21.70)
411.86
810.53 $
138.69%
428.78
75.79
0
(92.71)
411.86
810.53 $
43.23%
411.86
80.50
10.39
(91.40)
411.35
815.53 $
39.60%
411.35
83.89
8.95
(90.26)
413.93
838.17 $
37.01%
413.93
86.12
8.91
(90.17)
418.78
860.53 $
35.26%
418.78
91.96
9.51
(89.50)
430.76
899.46
33.96%
44.06
40.33
6.73%
26.49
123.32
4.05%
12.18
1.86%
82.72 $
12.64%
79.15
61.05
9.01%
35.97
136.61
4.09%
12.13
1.38%
127.25 $
14.48%
67.81
48.71
7.57%
28.52
107.56
3.18%
9.90
1.10%
106.23 $
11.85%
65.39
48.34
7.89%
33.25
114.13
4.01%
15.13
1.82%
113.77 $
13.72%
77.75
58.41
42.21%
33.93
112.01
18.42%
15.72
8.54%
127.40 $
69.17%
66.19
53.12
34.00%
27.26
106.17
14.00%
14.11
7.25%
107.56 $
55.25%
60.31
43.20
27.00%
31.27
122.67
14.00%
15.08
6.75%
106.65 $
47.75%
69.61
41.60
26.00%
36.14
124.20
13.50%
16.06
6.00%
121.81 $
45.50%
69.61
49.28
8.00%
36.14
130.81
4.15%
16.06
1.85%
121.81 $
14.00%
55.07
43.45
28.00%
29.50
117.39
15.00%
13.77
7.00%
98.34 $
50.00%
56.86
42.00
27.00%
27.38
107.55
13.00%
9.48
4.50%
93.71 $
44.50%
69.60
43.66
28.00%
32.31
99.67
13.00%
11.19
4.50%
113.10 $
45.50%
80.18
41.75
27.00%
37.12
100.00
12.50%
14.85
5.00%
132.15 $
44.50%
80.18
52.20
8.42%
37.12
123.44
3.90%
14.85
1.56%
132.15 $
13.87%
85.70
51.62
8.25%
41.55
127.30
4.00%
15.58
1.50%
142.83 $
13.75%
95.07
53.49
8.50%
44.74
126.96
4.00%
16.78
1.50%
156.59 $
14.00%
100.96
53.96
8.50%
48.11
134.39
4.05%
19.60
1.65%
168.67 $
14.20%
110.99
56.03
8.75%
52.64
137.70
4.15%
22.20
1.75%
185.83
14.65%
2.54
3.16
3.00
2.48
2.64
2.96
3.02
3.02
2.84
3.18
3.00
3.02
3.02
2.83
2.71
2.62
UOIG 17
$952.79
$1,038.76
138.99
57.74
15.82%
101.46
78.26
11.55%
7.27
3.02
0.83%
42.24
17.54
4.81%
32.77
13.61
3.73%
322.73 $
36.73%
2.47
$196.67
2015E
88.09
49.14
13.46%
89.96
82.34
13.75%
5.38
3.00
0.82%
0.00
0.00
0.00%
20.88
11.65
3.19%
204.31 $
31.23%
Current Ratio
$869.96
2014E
$829.20
65%
$267.72
Q4
$896.10
85%
$223.36
Q3
$878.68
% of Inventory Quick
$194.68
Q2
03/31/2014E 06/30/2014E 09/30/2014E 12/31/2014E
$654.31
% of Accounts Receivable Quick
$184.20
Q1
2013E
2.52
University of Oregon Investment Group
May 17, 2013
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
24.00% Terminal Growth Rate
Risk Free Rate
1.66% Terminal Value
Beta
1.69 PV of Terminal Value
Market Risk Premium
% Equity
5.71% Sum of PV Free Cash Flows
Considerations
3.00%
1,075
340
230
100.00% Firm Value
569
% Debt
0.00% Total Debt
0
Cost of Debt
5.61% Cash & Cash Equivalents
139
CAPM
11.31% Market Capitalization
569
WACC
11.31% Fully Diluted Shares
171
Implied Price
$3.33
Current Price
$6.24
Overvalued
Cost of Debt
3-Year LIBOR Curve
1.61%
Premium Above LIBOR
4.00%
Cost of Debt
5.61%
(46.65%)
Final Price
DCF PriceTarget
Comparables Analysis Price Target
Price Target
Current Price
Overvalued
Implied Price Weight
$
3.33 60.00%
$
6.62 40.00%
$4.64
5.91
(21.42%)
UOIG 18
University of Oregon Investment Group
May 17, 2013
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
Terminal Growth Rate
2.0%
2.5%
3.0%
3.5%
4.0%
-46.6%
2.0%
2.5%
3.0%
3.5%
4.0%
1.49 $
3.69 $
3.85 $
4.03 $
4.23 $
4.47
1.49
(40.92%)
(38.40%)
(35.53%)
(32.22%)
(28.39%)
1.59 $
3.38 $
3.51 $
3.65 $
3.82 $
4.01
1.59
(45.96%)
(43.87%)
(41.52%)
(38.84%)
(35.76%)
1.69 $
3.10 $
3.21 $
3.33 $
3.47 $
3.63
1.69
(50.34%)
(48.60%)
(46.65%)
(44.45%)
(41.95%)
1.79 $
2.86 $
2.95 $
3.05 $
3.17 $
3.30
1.79
(54.19%)
(52.73%)
(51.10%)
(49.27%)
(47.21%)
1.89 $
2.65 $
2.73 $
2.81 $
2.91 $
3.01
1.89
(57.60%)
(56.35%)
(54.98%)
(53.45%)
(51.74%)
Adjusted Beta
Adjusted Beta
3
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
Terminal Growth Rate
2.0%
2.5%
3.0%
3.5%
4.0%
-46.6%
2.0%
2.5%
3.0%
3.5%
4.0%
9.31% $
4.26 $
4.47 $
4.72 $
5.01 $
5.36
9.31%
(31.80%)
(28.38%)
(24.41%)
(19.77%)
(14.24%)
10.31% $
3.61 $
3.76 $
3.93 $
4.13 $
4.35
10.31%
(42.24%)
(39.84%)
(37.11%)
(33.98%)
(30.35%)
11.31% $
3.10 $
3.21 $
3.33 $
3.47 $
3.63
11.31%
(50.34%)
(48.60%)
(46.65%)
(44.45%)
(41.95%)
12.31% $
2.70 $
2.78 $
2.87 $
2.97 $
3.08
12.31%
(56.79%)
(55.49%)
(54.06%)
(52.46%)
(50.68%)
13.31% $
2.37 $
2.43 $
2.50 $
2.57 $
2.66
13.31%
(62.02%)
(61.04%)
(59.96%)
(58.78%)
(57.46%)
WACC
WACC
3
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
2.5%
3.0%
3.5%
4.0%
-46.6%
2.3%
2.3%
3.0%
3.8%
4.5%
2.19 $
2.26 $
2.34 $
2.44 $
2.54
41.00%
(64.37%)
(64.37%)
(62.45%)
(60.14%)
(57.32%)
42.00% $
2.64 $
2.73 $
2.84 $
2.95 $
3.08
42.00%
(56.93%)
(56.93%)
(54.55%)
(51.69%)
(48.20%)
43.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
43.00%
(49.49%)
(49.49%)
(46.65%)
(43.24%)
(39.08%)
44.00% $
3.55 $
3.68 $
3.82 $
3.98 $
4.16
44.00%
(42.06%)
(42.06%)
(38.75%)
(34.79%)
(29.96%)
45.00% $
4.01 $
4.15 $
4.31 $
4.50 $
4.70
45.00%
(34.62%)
(34.62%)
(30.85%)
(26.34%)
(20.84%)
Gross Margin
2.0%
41.00% $
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
3
Tax Rate
Gross Margin
3
Terminal Growth Rate
Terminal Growth Rate
2.0%
2.5%
3.0%
3.5%
4.0%
22.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
23.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
24.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
25.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
26.00% $
3.10 $
3.21 $
3.33 $
3.47 $
3.62
UOIG 19
University of Oregon Investment Group
May 17, 2013
Appendix 7 – Sources
Cisco Website
Factset
IBIS World
Morningstar
Seeking Alpha
TriQuint Investor Relations Page
TriQuint Press Releases
TriQuint SEC Filings
TriQuint Website
Yahoo! Finance
UOIG 20