Maxim (Nasdaq:MXIM), ON Semi (Nasdaq:ONNN), Marvell (Nasdaq:MRVL), Broadcom (Nasdaq:BRCM), National (NYSE:NSM), Fairchild (NYSE:FCS), Intl Rectifier (NYSE:IRF), Microsemi (Nasdaq:MSCC) Have Best Potential Upside Says FBR

Commenting on the semiconductor sector, FBR said the companies with the most potential upside in their view are Maxim (Nasdaq:MXIM), ON Semi (Nasdaq:ONNN), Marvell (Nasdaq:MRVL), Broadcom (Nasdaq:BRCM), National (NYSE:NSM), Fairchild (NYSE:FCS), Intl Rectifier (NYSE:IRF) and Microsemi (Nasdaq:MSCC)

FBR said, "Here we discuss Maxim Integrated (Nasdaq: MXIM)(Outperform) and our latest 1Q11 production start checks. Regarding Maxim, the firm has seen meaningful success ramping analog baseband chips into CDMA phones from Samsung and LG, phones usually powered by Qualcomm baseband chips. With Apple's new CDMA-based iPhone about to launch, we cannot help but wonder if the innards of this device are similar to the innards of other CDMA-based handsets that often contain Maxim analog baseband chips. While we have not confirmed anything in this regard, it is possible Maxim's chips could be found inside the CDMA-based iPhone, instead of the power management unit currently designed in from Dialog. If 20M CDMA-based iPhones are built in 2011 with an analog baseband content of $2, then $40M of incremental revenues would be generated, contributing about $0.04 of annual EPS, a positive. Separately, we detail our updated production start checks, which were largely stable versus our prior month checks in aggregate, with production forecast improvements by Nvidia (Nasdaq: NVDA), Marvell (Nasdaq: MRVL), and Broadcom (Nasdaq: BRCM) largely offsetting production forecast cuts from Qualcomm (Nasdaq: QCOM), Texas Instruments (NYSE: TXN), Altera (Nasdaq: ALTR), and Atheros (Nasdaq: ATHR). Regarding chip stocks, while playing some defense may make sense following a big run higher since Labor Day, and given that CES has historically marked a peak in both chip stock prices and sentiment, we do think a "beat and raise" round of 4Q earnings results, improving economic (jobs and manufacturing) data, an inflow of cash from bonds to equities, and still-reasonable chip firm valuations (14x 2011 P/E for sector) may mean that any sell-off is short term in nature and a likely buying opportunity. Chip stocks remain cheap compared with software stocks, and compared with the overall market, especially in light of robust demand trends and structural growth opportunities. We think the SOX can grind higher toward 475–500 by year-end 2011. Stocks to focus on for potential upside include Maxim (Nasdaq: MXIM), ON Semi (Nasdaq: ONNN), MRVL, BRCM, National Semi (NYSE: NSM), Fairchild Semi (NYSE: FCS), Intl Rectifier (NYSE: IRF), and Microsemi (Nasdaq: MSCC)."

FBR added these points: 1) Maxim could win a power management socket in the new CDMA-based iPhone (though nothing is confirmed); possible $0.04 annual EPS impact; 2) 1Q production start checks largely stable and better than seasonal at flat QOQ; raises by NVDA, MRVL, and BRCM offset by cuts from QCOM, TXN, ALTR, and ATHR; 3) Commentary for firms that increased production forecasts; 4) Commentary for firms that decreased production forecasts; 5) Shares of Intel (Nasdaq: INTC) widely disliked—a potential opportunity, if Sandybridge ramp is robust.