Needham & Company on Analog/Mixed Signal: Q2 Earnings Preview (MPWR, POWI, CRUS, ISIL, VLTR)

Needham & Company on Analog/Mixed Signal: Q2 Earnings Preview

Analyst, Vernon Essi, Jr., said, "By now investors have widely accepted that 2012’s semiconductor revenue growth is likely to be hobbled, underscoring our “Spruce Goose” moniker as it pertains to a cyclical recovery that is lacking meaningful lift. Adding insult to injury is that the typical seasonally strong Q3 will likely be flattish to barely up Q/Q. This is troubling for analog as it will mark two back to back years without a meaningful Q/Q bump for Q3: 2011 was a 2.7% drop, 2010 was a 4.8% gain and 2009 was a 14% gain off of smaller recessionary levels. Fortunately there have been opportunities to ride the rising and falling waves of sentiment in the group."

We are cautious on the following names ahead of their prints:

Monolithic Power (Nasdaq: MPWR): shares have been relatively immune to the gyrations of most semi names in July due to anticipation over the incremental dollar content opportunities in communications infrastructure & industrial that have yet to hit the P&L. Given its heavy Consumer exposure (at 55% of 2011 revenue) and the majority of its revenue is driven by China, we believe MPWR may struggle to meet the 9% Q/Q growth that is currently the consensus forecast for Q3.

Power Integrations (Nasdaq: POWI): Shares have already reflected what is likely to be a muted Q3 Q/Q revenue guide however consensus remains relatively high. We are modeling 7% growth Q/Q, which we believe has risk in this environment. This, coupled with a consensus guide of 9% Q/Q makes us apprehensive on the shares ahead of Q2 results despite the pullback.

This Q2 earnings season we are bullish on these three names:

Cirrus Logic (Nasdaq: CRUS): Company is now experiencing a share price uptrend into earnings as investors expect a strong SepQ revenue guide (30%+ Q/Q) due to a design win in the iPhone 5 in addition to the new iPad (Nasdaq: AAPL) offering. Also, we believe CRUS may have more news to share on the LED lighting controller Tier1 socket win; this should be a positive sentiment driver for investors. We like the shares longer-term but warn investors that CRUS will likely be very volatile until results are posted on July 30th.

Intersil (Nasdaq: ISIL): Despite a muted revenue guide we believe the earnings improvements from the recently announced reorganization efforts will prompt interest in ISIL shares. In May we raised our 2013 EPS from $0.55 to $0.85 on the announced cost improvements and the shares have not responded. While we expect most investors to take a “wait and see” approach on the success of the top growth drivers, we believe the cost improvements will spark further interest from value-oriented investors.

Volterra (Nasdaq: VLTR): Company remains a strong Romley attach rate story and we expect mgmt to echo the positive sentiments shared by Intel (Nasdaq: INTC) – primarily that datacenter revenue grew 14% Q/Q for Q2. There are concerns that the Notebook revenue may be muted for the remainder of the year, which we believe VLTR shares more than reflect. Given the strong secular demand for VLTR’s products relative to the soft macro environment we expect investors will rotate back into the shares post earnings.

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