Story in Financial Post on 1999-08-28 for those who missed it. Positive sentiment with one analyst's new target at $11 and put a "BUY" recommendation on it. Mosaid closed at $10.70 today. Here's the full story:
Saturday, Aug. 28, 1999
Mosaid diversifies to keep the
good times rolling
By JILL VARDY
The Financial Post
OTTAWA - A recovering market for semiconductor chips
means that times are finally good again for Mosaid
Technologies Inc. But Mosaid executives know the good
times won't last forever, and they're using its return to
profitability to prepare for the next downswing in the sector.
For now, Mosaid is basking in the glow of four major
partner agreements with silicon chip giants, a much improved
semiconductor sector to which it supplies designs and testing equipment, and the goodwill of financial analysts covering the stock.
The share price (MSD-T) has jumped to near its 52-week
high since Mosaid announced last week an unexpected profit
of $497,000 (7c a share) in its first quarter on revenue of
$9.7-million. It closed yesterday at $10.25, down 45c.
That's a far cry from a year ago when Mosaid, mired in a
weak semiconductor sector on which it relies for business,
saw its shares bottom at $3.55 following a loss of $5.4-million(75c) on revenue of just $4.1-million.
Since then, Mosaid has spent millions preparing new lines of business and making sure that it stood to gain big from the recovery when it came.
George Cwynar, Mosaid's chief executive officer, says the
company's fortunes are still largely tied to those of the
memory chip industry, which is expected to recover this year
and post strong growth in the two following years.
But the industry is cyclical and a downturn like the one that just hammered Mosaid will eventually come around.
"So we are diversifying away from a dependence
on this cycle with new initiatives that make us
more independent of the memory industry," Mr.
Cwynar says. Mosaid has entered into patent
cross-licensing agreements with Toshiba
Corp., NEC Ltd. and Fujitsu Corp. Those three
deals will bring Mosaid an extra $13-million in sales
this year, the company predicts.
Mosaid has been designing memory chips for years, and
currently has more than 60 issued patents. Another 100 are
pending. The way the sector works is that companies holding
patents to certain innovations may find those innovations
being used in other companies' products. In those cases, the
company holding the patents extracts payments from other
firms using the technology by signing licensing agreements to those patents.
So far, Mosaid has licensed its patents to three of the
world's top 10 manufacturers of memory chips. Most of the
others are candidates to license Mosaid's patents, too.
Meanwhile, Mosaid is working with Toshiba on a new
networking switch-on-a-chip for the telecommunications
sector. That project, which promises to increase the speed
and reliability of communication networks, will be ready in
early 2001 and is attracting considerable interest.
That's encouraging, analysts say, because that market is
less likely to be subject to the swings of the traditional
memory chip industry.
Another project, with Chrysalis IT, will create an encryption processor for the spring of 2000.
And finally, Mosaid is set to announce at the end of the
month a content-addressable memory (CAM) chip, also for
the telecommunications sector. The CAM helps high-speed
switches look up where messages are supposed to go and
send them through quickly. Analysts have been told that
Mosaid has already found a significant customer for that
product.
These new business initiatives, along with a recovery in
Mosaid's traditional product lines, have attracted the attention of analysts. Mr. Cwynar says he expects several to initiate coverage soon.
"All these new initiatives are really gravy on Mosaid's
story," said one analyst who covers the company but is not
permitted to be quoted.
Analysts who have long followed the company, such as
Brian Piccioni of Nesbitt Burns, are increasing their
estimates of the company's growth potential. Mr. Piccioni
recently raised his target price for Mosaid to $11 from $9,
with a "buy" recommendation, and increased his earnings
estimates in light of higher revenues and lower operating
expenses.
"Our preliminary estimates suggest Mosaid could earn 14c
a share on revenue of $38-million in fiscal 2000, and 34c a
share on revenue of $54-million in fiscal 2001," Mr. Piccioni wrote.
Mr. Cwynar expects that in four years, 60% of Mosaid's
revenues will come from its semiconductor business and the
remaining 40% from its testing products. Right now the
backlog for test systems stands at about eight weeks, a big
improvement from the company's previous quarter. Of the 60% in revenues from semiconductor products in the future, about two-thirds will result from sales of Mosaid's
semiconductor products for the communications sector,
including its new system-on-a-chip.
But these new semiconductor products require heavy
investment in Mosaid's infrastructure over the next year.
Those investments will be financed from Mosaid's cash
position of $16.5-million and from its ongoing business, Mr.
Cwynar says.
One risk facing Mosaid -- and many other technology
companies -- is finding the qualified staff to fill the job
openings at the company. Mosaid expects to increase its
current staff of 170 by 25% this fiscal year. "Finding those people is not inhibiting our growth right now,
but it's taking a lot of effort and some additional expenses," Mr. Cwynar says. |
