Former Lehman Brothers Research Team Member Picks 2010 SemiCon Top Stock Winners
February 28, 2010 - The Wall Street Transcript has just published Semiconductors, Semiconductor Equipment & EDA Software Report offering a timely review of the Semiconductors sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Arnab Chanda joined ROTH Capital Partners in 2009 as a Senior Research Analyst focused on the electronics sector. Prior to joining ROTH, Mr. Chanda worked at Deutsche Bank as Director and Senior Research Analyst, covering communications and digital media semiconductor companies. Prior to that, he was Senior Vice President and Senior Research Analyst, covering communications and digital media semiconductor companies at Lehman Brothers.
Previously, Mr. Chanda was a Research Analyst who covered EDA and digital media IC companies at Robertson Stephens. He began his career as an Analyst in Robertson Stephens' technology investment banking group. Mr. Chanda was a member of Lehman Brothers' Institutional Investor-ranked semiconductor research team from 2000-2003, and he was ranked third in communications ICs in the Greenwich Quality Survey in 2006. Mr. Chanda graduated from Stanford University with a B.S. in physics and a B.S. in chemistry in 1996.
TWST: What names do you like and why?
Mr. Chanda: If you look at the larger companies with interesting things going on, one is Broadcom. Broadcom has always been at the cutting edge of integration; and the thing they have, which nobody else has, is they have the ability to be a leader in connectivity. In other words, if your TV needs to connect to your PC, to your handset, they are starting to get the same type of things like WiFi and Ethernet. There are not very many companies that have the ability to provide that technology. Broadcom has always been a leader in convergence.
They were probably the first semiconductor company that I can think of that actually went public already having two different revenue streams back in 1998. Their founders and early management recognized the need to build a multi-product, successful company, which was unusual at the time. Broadcom has been the beneficiary of the connectivity trend, where all the devices are starting to connect to each other using different types of communications protocols.
Broadcom is also finally monetizing their long investment in wireless handsets starting 2010. In the infrastructure market, you need more of a bandwidth upgrade cycle to make up for all the video and all the other traffic that are going through, causing a transition to faster 10-gigabit traffic. Broadcom plays pretty well with all these major trends. Another interesting large-cap name is NVIDIA. While most people are focusing on their chipset business loss, it's not very well understood that they can partially replace this with a low-end GPU that is much higher margin.
Also their highest-margin business in workstations is recovering, and their GPU computing product, Tesla, is seeing traction. Their handheld business, Tegra, will finally see revenues from multiple portable entertainment devices as well as tablets this year. Most importantly, their core GPU business will see a recovery as the new Fermi platform launches in FQ2. We think NVIDIA is entering a new growth cycle with the potential for gross margins to easily surpass their previous peak, which should help multiple expansion.As you look at the mid-sized names, one company I really like is Atheros.
Atheros is one of the few companies that has understood the need for doing multiple products and acquisitions, and they're really trying to set up a very strong communications IP company on the connectivity side. Historically, they were a pioneer in WiFi; now they have taken WiFi into the handsets as well as into consumer devices, such as handheld gaming, cameras, TVs, etc. They've acquired companies in Ethernet and GPS, where they are starting to see good traction. Bluetooth is also an additional driver for 2010, and Atheros has acquired Intellon for powerline communications.
They've done a pretty good job with multiple product cycles. In the smaller companies, Cavium is one that I like. They are very interesting because it's rare for a company of this size to be successful in processors. They have taken advantage of the transition that's occurring in the infrastructure market, where you need to redesign the infrastructure in order to transmit data and video traffic that's going to go through the network. They've tried to run the processors from the low end to the high end of that market as well as have a special video chip.
NetLogic also plays in the same market and has used their strong success in coprocessors for searching packets to enter the 10-gigabit and processor space, and has the potential to outperform in the next few years. Power Integrations is a play on a pretty unique trend on energy efficiency and LEDs. We believe that it has started to have an inflection point in terms of the growth rates, as energy efficiency becomes more important for electronic devices, LEDs replace traditional lighting, as well as its foray into high-current applications.Volterra is also a very interesting company with unique technology.
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