Needham & Company, commenting on the analog sector heading into 2011, has chosen Volterra Semiconductor (Nasdaq:VLTR) and Cirrus Logic (Nasdaq:CRUS) as their top picks.
They said, "In writing our 2010 review we could not be more pleased with the upward turn of the analog group's share prices in September given the volatility in group sentiment through the course of the year. The material valuation disconnect between semi stocks (and most hardware tech) and the rest of the market's industry verticals was noticeable and we were pleased this gap started to close towards year-end. Additionally, the mid-Q4 reports and earnings out of the industry have been relatively upbeat compared to expectations. For instance, Texas Instruments (NYSE:TXN) tightened its range within prior guidance and expects 1H 2011 to experience normal seasonality as the recent inventory correction winds down. This prompted us to move our cash adjusted target P/E multiples from 2011 to 2012 and as a result, believe that most of our analog coverage universe will offer upside in share price valuation in 2011. We look forward to a more normal growth year for analog semis of about 7% in aggregate across the industry, with typical seasonality and multiple incremental, secular growth drivers ranging from LED lighting to automotive infotainment. We highlight Volterra Semiconductor and Cirrus Logic as the two best names to own in our universe coverage."
"Our 2011 Key Themes: We anticipate that the silicon supply chain for LED general lighting will become more active with momentous investor enthusiasm. We also expect the tablet buzz to die down while other markets such as automotive infotainment take a front seat as a secular driver for analog silicon content."
"Our Two Best Picks: We believe that Volterra Semiconductor will have both the incremental notebook and server opportunities in the first and second half of 2011, respectively, as well as strong 2012 growth to prompt interest from investors. We also believe that Cirrus Logic will offer earnings momentum due to its major customer in portable audio, however it will also demonstrate signs of product diversity in the second half of 2011, garnering incremental investor interest."
Volterra Semiconductor was trading at $23.20, up $0.02, or 0.09 percent, as of 11:59 AM EST. Cirrus Logic was at $15.99, down $0.01, or 0.06 percent.
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