Northern, WI  12/3/2012 (BasicsMedia)  —  Sequans Communications (NASDAQ:SQNS) is up 35% today and is an important market mover albeit a small one.  They compete  with Qualcomm (NASDAQ:QCOM) and Verizon (NYSE:VZ) and primarily the company supplies 4G LTE and WiMAX semiconductor solutions for wireless broadband applications and it’s been a tough year for them in 2012.  Theys started the year at $2.75 and moved quickly in January to near $4 p/s before experienceing a steady decline for most of the year.  Today’s +35% is a bright spot for them.  The company offers solutions which incorporate baseband processor and radio frequency (RF) transceiver integrated circuits along with proprietary signal processing techniques, algorithms, and software stacks. The company offers baseband solutions for 4G protocols that serve as the wireless processing platform for any 4G device.

It’s tempting to look at SQNS with a market value of just $60million and think its cheap. After all they are a pure play on 4G and the forecasts provided by ABI Research are staggering.  In order for (SQNS) to succeed they need an LTE smartphone design win with a Tier 1 handset vendor, this would secure their future and lead to a massive revenue ramp. As mentioned smartphone vendors are using a vertically integrated approach and this is a competitive market.

They also need revenue growth: and (SQNS) has announced CPE and embedded device wins in LTE. Time will tell if these and future design wins actually lead to any material revenue growth. Ideally youneed to see strong revenue growth as evidence of success in the non-smartphone/tablet market.

WiMAX sales have dried up for SQNS, and so far they haven’t been able to replicate their success in WiMAX to LTE. Management’s strategy was to initially focus on TD-LTE particularly China and India, rather than FDD-LTE and the US smartphone market. This was a mistake as the US smartphone market has started supporting LTE.

ABI Research is forecasting strong growth for 4G device chipset sales with most of the growth in LTE. QCOM has a strong foothold in the US Smartphone market, and numerous smartphone vendors are using their own 4G chips making it difficult for SQNS to compete.

Investors should look for one of two catalysts before investing in (SQNS) an LTE smartphone design win with a Tier 1 handset vendor or a strong ramp in revenues from their non-smartphone business. Until then investors may be better served with QCOM as the preferred play in the fast growing 4g chip market.

Disclaimer:  We have no position in any stock mentioned here.


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