Wednesday, March 21, 2007

Calls of Note Part 2

- Merrill Lynch met with Netlogic's (NASDAQ:NETL) management recently and came away positively about the company's growth prospects. NETL appears well positioned to benefit from emerging trends such as 10G, IPTV, and VoIP, and is expanding its addressable market through new products. Despite the recent run up, the firm sees further upside in the next 12-months and are raising tgt from $26 to $32.

MLCO expects NETL to report an inline to slightly better Mar-07Q, and believe that Jun-07Q revenue guidance will be more or less inline. Cisco should rebound this quarter as inventory adjustments at that customer appear to have ended. Going forward, sales to Cisco will likely remain flattish until NETL's new wins begin to ramp in early 2008. On the other hand, revenues from ALU, JNPR, Arris, and FDRY are expected to grow strongly throughout 2007. They believe NETL's new product ramps are on track and expect the company's tier 1 wins for its content processor (NETL7) to start to ramp in 2H.

As Triple Play gains traction, TCAM technology adoption is broadening which should help NETL to diversify away from Cisco. NETL appears particularly well-positioned at Edge Router and IPTV system vendors such as ALU, JNPR, RBAK, MOT, and BigBand. NETL's sales to these customers should grow strongly as routers with higher TCAM content begin to ship over the next few quarters.

Notablecalls: The tgt raise is substantial enough to generate some buy interest.

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