Limited Visibility on SiRF Shares

We maintain our Hold recommendation on SiRF Technology Holdings, Inc. (SIRF), as the current market valuation appears reasonable. Several end-markets that have the potential to significantly revise expectations upwards don’t appear to be near-term catalysts. A number of SiRF's customers and several providers into the Personal Navigation Devices (PNDs) market have indicated softness in the marketplace.

SiRF is the leading supplier of Global Positioning System, or GPS, semiconductor solutions designed to provide location awareness capabilities in high-volume mobile consumer and commercial systems. Its problems over the past three quarters stem from its inability to compete in the cellular handset market.

The mass adoption of GPS in mobile handsets will certainly mean a large and quick reduction in average selling price. This is even showing up in segments where SiRF once held a dominant market position. The company also faces customer concentration risks, since roughly 64 percent of its quarterly revenue comes from its four largest customers.

SiRF presently trades at a lofty multiple of 54.8x our 2009 earnings (P/E). The company reported an extremely strong quarter as records were set for revenue, operating profit, and shipment volume, then followed that up with three very weak quarters. Significant revenue ramping will probably not occur until the second half of 2008.

Therefore, visibility will be limited through the current quarter. We believe this company has solid long-term potential, and will outgrow the industry in the next several quarters. Consequently, we are setting our $7 price target.

Read the full analyst report on SIRF