Monday, November 12, 2012

CAVM: Jefferies Ups to Buy on Micro-Base Station Prospects

Shares of chip maker Cavium (CAVM) are up 70 cents, or 2%, at $33.40 after Jefferies & Co. analyst Dundeep Bajikar raised his rating on the stock to Buy from Hold with a $44 price target, up from $32, writing that the company may benefit from the roll-out of wireless base station equipment that’s cheaper and simpler, to serve the expansion of both 3G cellular networks and emerging networks based on “long term evolution,” or LTE.

Conversations last week at the Mobile World Congress in Barcelona, Spain, with equipment vendors Huawei Technology (002502CN), ZTE (0763HK), privately held Aricent Group, and RadiSys (RSYS) suggest to him that today’s base stations are dropping dramatically in price, now costing $10,000 to $20,000 on average, down from $40,000 in past.

Those systems will need to use cheaper “application-specific standard products,” or ASSPs, like the kind Cavium offers rather than traditional field-programmable gate arrays (FPGA), as they have typically to date, to save costs, writes Bajikar.

These systems should ship in volume in 2014, he writes, but Cavium is expected to start producing its chips for the systems next quarter. That could be a $400 million per year opportunity, he thinks. Competitors include Texas Instruments (TXN) and Freescale Semiconductor (FSL).

Cavium also is getting business from Huawei for corporate routers and switches, Bajikar believes, based on his “checks.”

For this year, he models EPS of 80 cents, and for 2013, he models EPS of $1.46. That is higher than the consensus of 66 cents and $1.20, respectively.


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