Friday, 12 July 2013

Inari: To Grow With Smartphones

In the battle of smartphone market share, it seems like Samsung has beaten Apple. Samsung sold 64.5 million smartphones in fourth quarter of 2012, compared to Apple's 43.5 million.

No matter who wins, it doesn't matter for Avago Technologies.

Avago is a US & Singapore based semiconductor company. It has 3 major business segment which are wireless communication, wired infrastructure & industrial. The wireless segment contributes almost half of its business.

Inari Amertron, based in Penang, is one of the contract manufacturers of Avago. Before the acquisition of Ceedtec & Amertron, more than 95% of Inari's revenue comes from manufacturing wireless chips for Avago who is also a major shareholder in Inari. After the acquisition, although the immediate revenue contribution from Avago is likely to be about 40%, but it is believed that it will still contribute more than 60% of Inari's profit.

Avago, who is a world leader in radio frequency wireless technology,  has both Apple & Samsung as its major customers. The popularity of smartphones has pushed up Avago and also Inari's business. As both Apple & Samsung are the most popular brands in smartphones & tablets, no matter who win, Avago will always be a winner as long as the demand of smartphone & tablet is still there.

In early 2013, after a slow first quarter, Avago did warn that the contribution of its wireless segment may slow down in Q2 mainly due to product transition of Apple. True enough, its Q2 (ended 5th May 2013) wireless segment revenue is 5-6% lower compared to Q1, but still stays at the upper end of company's guidance.

However, Avago, who supplies wireless chips in both  iPhone 5 and Galaxy S4, foresees a much better 2nd half of 2013, lifted by the pending launch of Apple's new iPhone (5s/6?) which is believed to be in September this year. 

Furthermore, there will be more network operators deploying high speed wireless technology 4G-LTE (long term evolution). This will certainly increase the numbers and quality of RF chips in a phone. The global LTE market is expected to almost double in year 2013 surpassing USD10 billion according to Infonetics Research.

All these development will surely boost RF chips makers like Avago, who has the winning edge because of its FBAR filter technology. However, will Inari benefit from all these as well? Does Inari manufacture the RF chips in both iPhone & Galaxy S, or just one of them? 

Almost in tandem with Avago, Inari's revenue and profit for its Q3 (ended Mac 2013) are lower compared to Q2 (Inari Q3's net profit includes tax gain of RM4.1 million). With Avago's gloomy guidance for its own quarter ended 5th May 2013, it is expected that Inari will post a "so-so" Q4 result, though the YoY surge in both revenue and net profit is still remarkable.

With brighter future ahead for Avago, especially with the to-be-launched-soon new iPhone, will Inari ride the trend as well?

No matter what, backed by world leader in RF technology with its FBAR filter, Inari is certainly well positioned to benefit from the boom of mobile electronics devices.

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