Silicon Motion (SIMO) Slammed as Qualcomm (QCOM) Could Takeover the Company's Hot Market

February 22, 2012 12:10 PM EST
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Shares of Silicon Motion (Nasdaq: SIMO) are down sharply Wednesday after an analyst cited a major risk to the the company's successful LTE transceiver business.

Analysts at Detwiler Fenton stated in a research report Wednesday that there is risk to Silicon Motion's LTE transceiver business at Samsung as the OEM begins to adopt Qualcomm's (Nasdaq: QCOM) dual mode LTE / CDMA solution.

To date, the majority of Samsung's LTE devices have utilized Samsung's own LTE baseband, a third party 3G baseband and two transceivers from Silicon Motion, the firm notes. Wall Street has been very excited about the stock as a way to play growth in LTE. This could all change.

While Silicon Motion appears on a role near-term at Samsung, Detwiler Fenton's analysts expect that business will begin to decline in the back half of the year when Samsung is expected to use cheaper, integrated LTE/3G baseband processors, primarily from Qualcomm.

Silicon Motion has been a beneficiary due to a lack of integrated LTE/3G basebands on the market, particularly for the mid and entry level markets. However, the first integrated solution, QCOM's MSM8960, is just now becoming available. While its high
price ($40 range) will limit its usage to high end handsets, as they look to the back half of the year they expect QCOM will launch a number of new, volume priced 3G/LTE slim line modems and Snapdragon solutions, starting in Q3:12.

This, according to the firm, "will represent a serious threat to SIMO's transceiver business as QCOM's basebands have their own integrated transceiver."

"We believe as soon as these new products hit the market, Samsung will stop using its own discrete LTE solutions given the performance and design improvements QCOM's integrated solution delivers over Samsung's current discrete LTE / 3G approach," the analyst continued.

Shares of SIMO last traded at $17.99, down 7.7 percent on the session.

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