Smartphone chip designers are among Bank of America (BofA) Merrill Lynch’s top picks in the semiconductor sector because low-end smartphones will drive strong demand from developing markets, it said yesterday.
Once the price of smartphones drops to US$130 or US$140 per unit, it will drive strong growth momentum, repeating the same scenario that happened in the feature-phone segment, BofA Merrill Lynch said in a media briefing.
“”We do like handset-related companies [in the chip designing area]. There are two in my coverage,” said Daniel Heyler, head of BofA Merrill Lynch’s global semiconductors research. “I think there is pressure on the 2G market, but we certainly do see rapid advances in the low-end smartphone market that includes China’s local brands.”
Once their prices drop, it will spur rapid adoption of smartphones in emerging markets, he said.
Heyler expected the price decrease to bring strong growth momentum for chip designers as it did to local handset chip designer MediaTek Inc (聯發科) in 2008 and 2009, after the price of feature phones fell to between US$130 and US$160 from between US$250 and US$300 range when the company entered the market.
MediaTek’s revenues expanded about 28 percent to NT$115.51 billion (US$3.92 billion) in 2009, compared with NT$90.4 billion in 2008, according to a company filing to the Taiwan Stock Exchange.
“We think the price point is repeating the same scenario for smartphone growth,” Heyler said.
Heyler said worldwide “there are a lot of smartphone companies, but very few smartphone chip companies.”
“It will be much easier to choose the future investment companies,” he said.
MediaTek forecast that its smartphone chip shipments would grow to 50 million units this year from last year’s 10 million units, as consumers in China increasingly switch to entry-level smartphones.
Heyler also expects inventory restocking of wireless chips and increasing demand for advanced technologies to boost contract chipmakers’ and chip packagers’ first-quarter results slightly higher than their previous forecasts.
However, Heyler still kept a moderately neutral rating on the semiconductor sector, meaning a 10 to 15 percent upside on stock prices.
“We really need to see more significant improvement in the macroeconomy” to upgrade the semiconductor sector to “buy,” he said.
Robert Cheng (鄭勝榮), head of Taiwan research at BofA Merrill Lynch, said he preferred Taiwan’s PC companies over handset companies because sales of Ultrabooks and new operating systems would increase average selling prices.
Among PC firms, Cheng tended to favor PC brands over contract PC makers because market share gains would help boost gross margin and profitability, he said.
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