STMicro Surges 8%: Capacity Ramp Points to iPhone 8, Says Craig Hallum
By Tiernan Ray
Shares of chip maker STMicroelectronics (STM) are up 95 cents, or almost 8%, at $13.13, after the company this morning reported Q4 revenue and profit higher than analysts were expecting, and offered an upbeat forecast as well for this quarter.
The focus of some this morning, beyond the numbers, is what appears to be a big win embedded in this report: getting a sensing part into Apple’s (AAPL) “iPhone 8,” presumably the next model of the device, coming out later this year.
CEO Carlo Bozotti said in prepared remarks, “importantly, by leveraging our strategic focus on Smart Driving and Internet of Things, we recorded year-over-year sales growth in the second half of 2016 across all of our product groups excluding discontinued businesses.”
Revenue in the three months ended in December rose 11.5%, year over year, to $1.86 billion, yielding EPS of 13 cents.
Analysts had been modeling $1.85 billion and 11 cents.
For the current quarter, the company sees revenue of $1.81 billion, ahead of the $1.77 billion consensus.
In a note to clients today, Craig-Hallum analyst Anthony Stoss reiterates a Buy rating, and raises his price target to $15 from $11, writing that big ramp up in expected capacity indicated by STMiicro management would seem to point to iPhone:
We note that STM is guiding to a sizeable increase in capex from ~$607 million in 2016 to ~$1.0-$1.1 billion in 2017, a result of new design activity set to ramp in 2H2017 that is likely Apple related. We believe this sets STM up well headed into the expected record volumes of the iPhone 8 with the potential to double its current ToF content (~$2 ASP/phone to ~$4) if an additional ToF sensor to support 3D sensing/AR capabilities is used. All major smartphone makers are now using STM’s ToF and expanding its use into additional models and use cases. We also expect STM will continue to drive both GM and OM lines by leveraging costs, improving fab utilization as well as wafer costs with new capex, and margin accretion from new product lines (ToF, SiC, etc.).
Stoss thinks this is news to investors:
Finally, we believe the success of the ToF sensor, winning the ToF/sensing socket in the iPhone 7, is still largely unknown by investors. Management noted on the call that they have now shipped into an impressive 70 handsets thus far which by our math is ~20 new phones that launched with ToF in Q4. In our view this segment still has a lot of room to grow as new and existing handset OEM’s continue to utilize the technology. We believe that STM has likely won the Samsung Galaxy S8 with ToF, and that the Apple iPhone 8 has the potential for an additional ToF sensor to support 3D sensing/AR applications, supported by Management’s commentary on the phone calling for a newly- won “substantial revenues” program set to launch in 2H2017.
Stoss raises his outlook for 2017 to $7.845 billion in revenue and 70 cents EPS from a prior $7.47 billion and 63 cents.
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