Cautious Outlook on Semiconductors Despite Opportunities in Smartphones, Cloud Computing: a Wall Street Transcript Interview with Brendan Furlong, Technology Analyst at Miller Tabak + Company

Wall Street Transcript

67 WALL STREET, New York - October 5, 2012 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Semiconductor Capital Equipment - Cloud Computing - Mobile Device Consumer Demand - Enterprise Data Storage Demand - High Computing Power Technology - Semiconductor Inventory Burnoff

Companies include: Intel Corporation (INTC), Apple Inc. (AAPL), Maxim Integrated Products Inc. (MXIM), Broadcom Corp. (BRCM), Marvell Technology Group Ltd. (MRVL), PMC-Sierra Inc. (PMCS), and many others.

In the following excerpt from the Semiconductors Report, an expert analyst discusses the outlook for the sector for investors:

TWST: While are you generally cautions on the sector at the moment, you do have some "buy"-rated stocks. Which one of them would you recommend to your investors as a best bet?

Mr. Furlong: At the moment, I would kind of narrow down my interest list to Maxim (MXIM) and Avago (AVGO), because both companies are leveraged to smartphones. So the only area with growth that I can see out there at the moment is smartphones, and they are two companies that have a nice exposure. So they will be the two companies that I would be more inclined to let investors look at.

Both companies, it's not all of their business, so they have exposure to industrial and communications, which is not growing, but at least they have a good 40% of the business, or thereabout, that have exposure to handsets, and that's going to help them weather the storm of the downturn here.

Everything else I would say I'm pretty cautious going into the September quarter, and I would even, though I'm roughly split 50/50 by the "neutrals," some of my "buys," I'm a little bit cautious on based on the current environment, and I'm expecting the stocks probably just to pull back a little bit.

TWST: What is your outlook for M&A within the semiconductor sector? Are there certain kinds of deals, or even specific potential transactions investors should be on the lookout for?

Mr. Furlong: Up until a couple of years ago, I've been pretty skeptical about M&A in the group because people had always thought it was going to happen and never did. But I think it's become such an expensive business to manufacture in these days in terms of capital expenditure. A lot of the smaller, little semiconductor companies are going to struggle in terms of R&D to kind of keep it going at the current time. So I think the smaller guys are probably going to sell. They'll stay in the market and find a buyer.

I think some of the bigger guys, like the Broadcoms (BRCM) and Marvells (MRVL), are probably going to be out there buying the smaller companies. Broadcom has obviously been a serial acquirer, and that's probably going to continue. But I think we expect more consolidation in the space.

TWST: Are there any of the smaller guys who you believe would be prime candidates for sale or purchase?

Mr. Furlong: I mean there's some market noise out there that PMC-Sierra (PMCS) is kind of a prime candidate to be taken out, and I would probably agree with that. But the problem with speculating on acquisitions is it could be years, it could be next month or it could be two years. The problem with acquisition speculation is that you just never know.

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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