Since POWI technology is upstream, their products are incorporated early on in production, the lead time to manufacture components can be extended (13 weeks in some analog processes is not unheard of).
POWI must anticipate demand based on a set of master schedule forecasts provided by OEM customers incorporating their technology. They have to balance the possibility of manufacturing too few components leading to lost sales and backlogs against making too much and ending up with dead inventory.
This all adds up to POWI (and most other companies in similar position) manufacturing to conservative estimates unless they KNOW they are going to need more production.
Q3 is traditionally the strongest quarter for POWI because market demand for products incorporating POWI technology swells in Q4 (consumer holiday shopping for (computers, cell phones, TV's, Set top boxes, etc). POWI sells components (and realizes that revenue) in Q3 for stuff we buy in Q4.
Q4 is good too, since it benefits from corporate spending, many times which has sat idle for a while, waiting for the new calendar year of purchasing. Q4 can get a kicker if there was a built-up backlog from Q3 that needed to be met (Hint POWI: that means its OK if you want to make more of the stuff and charge more for it :o)
All quarters are affected by an unknown factor referred to as "turns business". Turns business is the process of taking and filling an order in the same quarter. This can be "out-of-the-blue" business from a new customer, but it many times it involves a regular OEM customer. It's really hard to know how this will really pan out!
I predict turns business is going to be very good. Look around, there are people EVERYWHERE that have those nifty new digital phones that sing songs when they ring, there is a HUGE market coming right around the corner with set top boxes, there is sleep-mode written all over hundreds of systems.
These all need POWI in some fashion or another, and POWI can only do so much to predict it all. They are going to miss some here and there, and it is going to lead to "turns" business. The best part of turns business is ... BIG FAT PROFITS. Since the business "puts a strain" on the process by compressing the time frame, POWI is rewarded with a bonus for "helping" the customer (ah, the beauty of proprietary technology :o)
So, with much upcoming unanticipated demand (I predict), much of it possibly being turns business, there is a very good chance we may see a nice surprise Q4. It doesn't matter too much in real terms, because "real" earnings growth is already so good, the price goes up quite nicely all by itself.
But, turns business can really drive the price up, if it creates a nice earnings surprise. People go nuts over that, so the emotional kicker can be VERY positive in terms of price appreciation. We'll see what we get soon enough ... either really good ... or really really good Q4 numbers.
I'm predicting the really good option ... but I'm not counting out really really good either ... what ya think?
Hope that helps a little
Regards, JB
P.S. Thank you for the option update, greatly appreciated, I think I'll passs on the Jan 27.50 puts for what was it, a case of sour milk? HAHA, oops wrong turn Dorothy, I don't think you're in Kansas anymore :o) |
