AmTech Previews Q2 Earnings of Major Handset Companies (QCOM, NOK, MOT, RFMD)

July 2, 2008 2:02 PM EDT

American Technology Research is out with a research note this morning previewing the upcoming Q2 earnings season for several large handset companies.

The firm calls current sentiment surrounding handsets "weak" and believes that this sentiment will remain heading into the summer due to "concerns surrounding Asia, which has traditionally offset seasonal weakness in Europe." Besides weakness in China, India and Korea, AmTech is also seeing a slow down in the U.S.'s high-end handset market, but says that it cannot quantify this trend. The firm notes that its checks within the handset industry are "now beginning to question 10% industry unit growth for the full year."

Despite these somewhat near-term factors, AmTech said it remains bullish on the handset industry long-term "and would look to add to key stocks in the group through the summer." The firm's top handset pick for the second half of this year remains Qualcomm (Nasdaq: QCOM).

• Qualcomm - rated Buy with a $60 price target. Reports July 23, after the market close.

The firm expects Qualcomm to report EPS of $0.55 for its June quarter and $0.54 for its September quarter. AmTech believes the stock has seen downside recently due to "soft data points from LG and Samsung and concerns that the company will stick to its FY08 guidance of $2.09-$2.13, which is below consensus and implies a down September EPS quarter."

AmTech calls Qualcomm "an excellent play on the upcoming 3G push by RIMM, AAPL and the industry". The firm suggests using any negative sentiment in regards to Qualcomm's Q3 earnings to load up on the stock in anticipation of a strong second half of this year.

• Nokia (NYSE: NOK) - rated Neutral. Reports July 17, before the market open.

The firm expects Nokia to report soft June quarter earnings and issue a weak outlook given its "stale product line-up and market conditions." AmTech is currently estimating EPS of €0.35 for this quarter.

AmTech believes Nokia's margins could bottom in June, but, more practically expects Nokia to guide margins flat to slightly down heading into the September quarter due to uncertainty surrounding its ramp of new products in the back half of '08. Specifically, AmTech sees a Q3 ramp of the E71 QWERTY device, the N96, the 6220 and the N78, and a Q4 ramp of the “tube�, Nokia’s first touch screen phone.

• Motorola (NYSE: MOT) - rated Neutral. Reports July 31.

AmTech is expecting Motorola to report a loss of 0.04 for its June quarter, compared to the company's guidance of ($0.02)-($0.04). The firm believes Motorola's handset segment will likely disappoint and is instead focusing on Motorola's core business. In fact, the AmTech report says it has "pretty much written off Motorola's handset business" as "if Nokia and Sony (NYSE: SNE) are struggling with macro and smart phone threats, than MOT is likely really having trouble." The firm's current estimate has Motorola selling about 28.5 million handsets during the quarter.

• RF Micro Devices (Nasdaq: RFMD) - rated Buy with a $5 price target. Reports July 29.

AmTech is estimating EPS of $0.01 for the June quarter, which is just a penny above the Street consensus of $0.01 and in-line with RF Micro's previously issued guidance. The firm sees RF Micro reporting a "meet and keep" quarter "at a minimum" due to "bottoms-up strength, despite industry concerns."

Further, the firm said it expects RF Micro to report a rise in its cellular business by 3.5% on a quarter-over-quarter basis. AmTech said it will be looking for updates into the company's cost-cutting efforts, which it believes could reduce expenses by $75 million annualized by the end of this year. According to AmTech, this level of cost reductions would bring RF Micro's operating margins to 10%.

Trading at an EV/sales of only 1.2x, the firm believes RF Micro is a buy at current levels.

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