With The Mobile Industry Upgrading To 5G, Buy Cavium

Bank of America says Cavium Inc CAVM would be a key beneficiary of the upcoming wave of network upgrades of carriers, along with Intel Corporation INTC, NVIDIA Corporation NVDA and Broadcom Ltd AVGO.

Mobile industry is preparing to upgrade to advanced (gigabit speeds) 4G and eventually 5G networks, driven by consumer demand for unlimited mobile video, massive Internet-of-Things (IoT), virtual/augmented reality and connected cars.

The industry body GSMA estimates 5G networks will get deployed by start of 2020, and reach 1.1 billion subscribers by 2025.

“Chipmakers will be key beneficiaries of the ~$700bn telcos could spend over next few years transforming their networks to support explosive man and machine traffic,” BofA analyst Vivek Arya wrote in a note.

In this backdrop, Arya sees Cavium as the best “pure-play” company with disruptive technology. Arya maintained his Buy rating on Cavium as he believes the company could take share even from larger players such as Broadcom and Intel in processors, switching, security and networking markets.

“Specifically, we believe CAVM benefits as in 5G more baseband processing moves to the base station from traditional radios, given the high latency and limited bandwidth available in traditional (CPRI) standards that connect the radio to the base station,” Arya highlighted.

Further, the analyst sees Cavium’s ThunderX server CPU would help expanding into control plane applications with differentiated accelerators, and challenging the current giant Intel.

Related Link: Loop Capital Initiated Coverage On 9 Semi Stocks, All With Buy Ratings

That said, Intel would also benefit from network upgrades as the company can now manufacture integrated application processor/baseband products in its internal factory on 14nm silicon. Intel’s newly announced 7560 modem (for 2018 phones) now also supports CDMA, which makes it more competitive against QUALCOMM, Inc. QCOM’s products.

“Qualcomm has long dominated the cellular baseband market, but INTC’s selection last year as the second vendor for 4G baseband at Apple Inc. AAPL’s iPhone has been a major proofpoint for success,” Arya noted.

Meanwhile, the analyst noted that Nvidia would benefit from greater use of AI/machine learning by telcos and industrial IoT companies, while Qorvo Inc QRVO is a key beneficiary of increasing RF complexity.

Other 5G beneficiaries include networking/RF/optical/analog chipmakers such as Broadcom, MACOM Technology Solutions Holdings Inc MTSI, Integrated Device Technology Inc IDTI, Inphi Corporation IPHI, Analog Devices, Inc. ADI and Xilinx, Inc. XLNX.