Pacific Crest Has Concerns About Chip Suppliers

Following the recent Linley’s carrier conference, Pacific Crest analyst John Vinh released a report outlining the firm’s updated outlook for semiconductor stocks. Vinh believes that the environment will remain challenging, but has an overall bullish outlook for a pair of names in the space.

Peak Capex

According to Vinh, developments at the conference indicate that carrier capex will continue to be weak throughout the remainder of 2015. Prior expectations were for a recovery in capex during the second half of the year.

Peak Macro Base Station Deployments

In addition to a weak capex forecast, Pacific Crest is now expecting macro base station deployments to peak this year.

“Linley is forecasting macro base station deployments to peak at just under 2 million given the roll out of LTE in China and the increasing use of small cell deployments, which at the margin are cannibalizing macro base stations,” Vinh explains.

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Long-Term Threat To FPGAs

Although network function virtualization (NFV) is still in its infancy, Vinh sees the developing technology posing a long-term threat to field-programmable gate arrays (FPGAs).

“While NFV would be negative for FPGAs as OEMs would be able to increase the use of ASICs, we believe the industry is at least four or five years away from any meaningful deployments as carriers are still trying to define final NFV architectures,” Vinh writes.

Remaining Bullish

Despite the challenging environment, Pacific Crest remains bullish on Xilinx, Inc. XLNX following Intel Corporation INTC’s acquisition of Altera Corporation ALTR. Pacific Crest even sees Xilinx as a potential M&A candidate for Qualcomm, Inc. QCOM.

In addition to Xilinx, the firm also has an Overweight rating on Cavium Inc CAVM.