From TheStreet.com:
thestreet.com
Cash Stash Will Cushion These Tech
Stocks Through Coming Turbulence
By John Rubino
Special to TheStreet.com
12/29/00 11:52 AM ET
For most tech companies, 2001 will be as hard as 1999 was easy. Demand for
whatever they're selling will probably stall, and with the debt markets closed to
them and their stock in the tank, most have lost the ability to finance their way
out of trouble.
But not all of them are sweating. A few raised big chunks of cash back when the
getting was good, and are now able to feast on the carcasses of their less
well-capitalized competitors. Here are three to check out:
IDT (IDTC:Nasdaq - news) is a relatively small player in today's most depressing
game, long distance. With everyone from Baby Bells to Internet access providers
piling into what used to be the cushy domain of AT&T (T:NYSE - news),
WorldCom (WCOM:Nasdaq - news) and Sprint (FON:NYSE - news), the price
per minute of a long-distance call is rapidly headed for zero. Nice for the rest of
us, but bad for the owners of those old-style circuit-switched backbones.
But long distance is less important to IDT's story than its management's great
sense of timing. In August, it sold more than $1 billion of stock in its Net2Phone
(NTOP:Nasdaq - news) subsidiary to AT&T, giving the company cash on hand of
$1.2 billion, or $33 a share, vs. a current price of $20.
It's using a little of this money to buy back its own stock, which makes sense at
the current price. But the really interesting part of the story is IDT's creation of a
venture capital arm, headed by former U.S. Senator Paul Laxalt.
Tech incubators are pretty much dead in the water these days, because most of
them did their buying near the market's peak and are now stuck with overpriced
assets unlikely to ever turn a profit. IDT, on the other hand, is getting in near the
bottom, when emerging companies are cheap and technical talent is once again
available. The division's early projects include paging systems where the caller
pays, eliminating monthly bills, and broadband Internet content.
IDT is also a big recent buyer of AT&T stock, which is the most problematic of its
strategies. But since it's doing this after the latter has tanked, the move is at
least defensible from a valuation standpoint.
OPTi (OPTI:Nasdaq - news) makes personal computer components, a segment
nearly as dismal as long distance. But instead of fighting the double whammy of
shrinking demand and intensifying competition, OPTi basically closed up shop. In
the September quarter, it laid off all but one R&D staffer and cut other expenses
to the point where its burn rate -- assuming sales drop to zero -- is less than $1
million a quarter. Inventories and fixed assets total less than $1 million,
eliminating the danger of big write-offs.
As for what OPTi does have, it recently licensed its patents (nonexclusively) for
$13 million, bringing its cash on hand to $33 million, or $3 a share, vs. a current
price per share of $4. And it owns a big piece of Tripath Technology
(TRPH:Nasdaq - news), a newly public maker of audio amplifiers. The stake is
valued at $49 million in OPTi's September quarter 10-Q report, and though it's
lower now, it still represents a serious chunk of change. The lockup period ends
in late January, and though OPTi can't sell its entire holding without cratering
Tripath's stock, it's reasonable to expect OPTi to pull out some cash when it can.
Maybe in anticipation, OPTi just announced it's buying back nearly 10% of its
outstanding shares.
Sonicblue (SBLU:Nasdaq - news) spent the 1990s as S3, a reasonably
successful supplier of graphics and multimedia accelerator subsystems for PCs.
Then, in a series of deft moves, it sold nearly $500 million of stock in Taiwanese
chipmaker United Microelectronics (UMC:NYSE ADR - news) and closed down
its PC graphics chip business just before the industry headed south. It changed
its name to Sonicblue, and now sits on $430 million of cash, about $4.50 a
share, vs. a stock price of $4.
Meanwhile, its remaining businesses look pretty hot, especially its Rio family of
MP3 players, which can store and replay a couple of CDs worth of downloaded
music. The newest models have rechargeable batteries, remote controls and
optional FM tuners and cassette adapters. According to a recent Forbes
magazine review, the Rio's built-in microphone also makes it competitive with
digital voice recorders: "Suddenly, the Rio isn't just for tech-savvy teens anymore,
but is something that a business traveler could find useful." From here, the
upgrade path includes slots for memory chips that will let users exchange their
favorite music.
Because you're paying less than cash for Sonicblue's stock, you get Rio's
potential for free.
Assuming there's a January effect this time around -- and given the speed of the
Nasdaq's plunge, I'd say a technical rebound is highly likely -- stocks like this
should be prime beneficiaries. If not, you're still protected by all that cash. |
