Fly on WallStreet

SIRF: Insights from Meetings with Management;
Easing Off Q406 But Encouraged by 2007 Prospects

· After hosting meetings with management, we are increasingly confident in our Q306 estimates, but trimming our aggressive Q406 estimates. We reiterate our BUY rating based on 2007 prospects for wireless and PND growth.

· Confident in Q3, but trimming Q4 estimates. After attending meetings with management, our confidence in Q306 PND growth from TomTom, MiTAC and others in Q3 has increased as TomTom continues to sole-source SIRF and gain share, MiTAC has boosted its sales goals for the year and worked off excess SIRF inventory, and GRMN continues its migration towards SIRF. However, we are trimming our prior $70.4 mil revenue est. for Q4 to $68.5 (consensus) as PND and consumer shipments will likely peak in Q3, not in Q4. Thus our Q406 EPS estimate drops a penny to $0.21 from $0.22. We think Q406 consensus of $0.24 is too high, and will likely adjust downward with guidance in the October conference call. We would encourage investors to take an opportunistic approach by increasing exposure after Q306 earnings are announced and new guidance is given.

· We remain highly encouraged by 2007 prospects. We believe there are number of catalysts for 2007, such as: 1) at least one major U.S. or European wireless service provider rolling out SIRF GPS and LBS (Cingular, T-Mobile, Deutsche Telekom or Vodaphone), PND market growth of 50%-70%+, a new shrink/enhanced SiRFstar III release, On*Star proliferates all GM models through calendar 2007 and possible
2H07 DVB-H revenue. Wireless design wins have increased to 50-60, from 40-50 to months ago. We think top line revenue can grow 30% or better while pretax income grows significantly faster in 2007 as SG&A likely falls from 12.5% of sales to 10.7% of sales. Depending on when another major wireless GPS roll-out is announced, we believe 2007 consensus revenue estimates ($303 mil) could be too. Our estimate is
$311 mil.

· Reiterate BUY rating and $32 price target. Although we are trimming Q407 estimates, we continue to rate shares BUY based the company’s 2007-2008 growth potential. Our $32 target is based on 32x our CY07 EPS estimate of $1.01, and we would note that shares traded as high as 43x when prospects for wireless growth were believed to be near term.

# posted by Broker A @ 1:04 PM