Thursday, December 14, 2006

Calls of Note Part 2

- Jefferies comments on SiRF Tech (NASDAQ:SIRF) saying their checks suggest TomTom has selected privately held Global Locate as a second source GPS chipset supplier, beginning with its next generation TomTom ONE. Firm expects this new PND to be introduced at the Consumer Electronics Show in January. This risk has been contemplated and discussed by investors for nearly a year, and SiRF's stock traded off 3% as recently as yesterday due to this potential concern. Although the firminitially dismissed this as a recirculation of a prior rumor/risk, they checked back in with some of their industry contacts and now believe that there is a high likelihood that the decision has been made to use Global Locate (displacing SiRF) in the next generation ONE platform. Although they believe this decision to second source makes sound business sense for TomTom to facilitate better pricing, the firm wase surprised by TomTom's decision to use its highest volume platform (65-75% of Q4 volume) as its test case.

The firm has reduced their revenue and EPS estimates for 2007: CY07 revenue estimate to $304MM (from $321MM) to reflect a $23MM reduction in their PND revenue estimate, partially offset by an increase in wireless revenue estimate by roughly $5MM. Reduced CY07 estimate to $1.00 (from $1.13) due to the lower revenue.

Jeffco does not believe SIRF's technology advantage is over and is sticking to their Buy rating. Notes that it should come as a surprise as SRIF's 90% PND mkt share is not sustainable over the long term. Tgt goes to $34 from $36.

Notablecalls: Several firms were out in defense of SIRF yesterday saying TomTom was not looking for a second supplier. Looks like they were wrong. I expect SIRF stock to come under pressure today as Jeffco's CY07 EPS cut looks pretty bad considering the valuation. Also, yesterday's dip buyers will likely be looking for a way out.

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