I give an unusual young king because it is a microcap. It is a king nonetheless by way of its 75% market share of VCOs read volume controlled oscillators for GSM base stations. But that is not the allure of this royal pebble.
Company has been in business for 50 years mostly serving RF needs of the military with high margin low volume business which they are slowly exiting. The Company produces seven major product lines:
1. Signal Processing components for industrial, military and
aerospace (Military/Aerospace Signal Processing, or MSP).
2. Signal Source components, primarily wide-band VCOs, for
industrial, military and aerospace (Military/Aerospace Signal
Source, or MSS).
3. Special Assemblies that combine MSP and MSS components
(Military/Aerospace Special Assemblies, or MSA).
4. Commercial Signal Source components including PLLs and narrow-
band VCOs (Commercial Signal Source, or CSS).
5. Commercial Signal Processing components, including
optoelectronic components and subassemblies used in magnetic and
fiberoptic products for CATV applications (Commercial Signal
Processing, or CSP).
6. Subscriber product components used in hand-held telephone sets,
pagers and other consumer-oriented products (Subscriber Signal
Source, or SSS).
Current businesses include aforementioned GSM infrastructure with whom they compete with Murata and Alps, two Japanese firms. Upgrading GSM to 3G should be lucrative. They also do PCS base stations (whew).
The Company entered into an agreement to be the sole-source provider
of VCOs for the construction of base station equipment in two Lucent
Technologies digital wireless communications programs underway in
Europe.
NOw they are starting to win contracts in broadband for LMDS, one of Gilder's favorite Last Mile alternatives. Just a prince here for now.
What is really interesting is another business to which there is no defined king. It is that of the subscriber, i.e. handsets and pagers. Looking at the numbers there are 350mm handsets expects next year (70 mm CDMA) which means the industry will need 700 million VCO (2 per handset). VARL has spent tha last 18 mos building production facilities to increase capacity from 2 million to 10 million and in 4 more mos could mdouble that again. the math says they will only need to capture 1.5% of market to get 9 million VCOS out of the door. They get somewhere between $1.65 -2.00 per VCO
They have prefereed provider status with Nokia and do a large percent of business with Errorickson and Batwing. Yes they are actively pursuing Q. The Company entered into an agreement to be the sole-source provider
with the Wireless Access group of Glenayre Technologies of a minimum
of 840,000 VCOs for use in a new wireless messaging device. This
agreement represents the Company's first significant, high-volume
order from the subscriber marketplace.
Tiny float of 6 million shares diluted, yes they make money, earnings every quarter. Institutional interest increasing, see Thomsen's. For a run down of the numbers see vari-l.com
Barriers to entry. Patent protection
Patent Issued Title
US05982243 11/09/1999 Oscillator selectively operable with a parallel tuned or a series tuned resonant circuit
US05903431 05/11/1999 Multiple single layer monolithic passive integrated circuits and method
US05867069 02/02/1999 Orthogonally mounted substrate based resonators
US05856769 01/05/1999 Continuously adjustable resonator
US05742213 04/21/1998 Unbalanced to balanced high impedance ratio wideband transformer circuit
US05675478 10/07/1997 Oscillator voltage regulator
US05619172 04/08/1997 High impedance ratio wideband transformer circuit
US04621241 11/04/1986 Wide range electronic oscillator
US04355421 10/19/1982 Broadband mixer with coplanar balun
US04125810 11/14/1978 Broadband high frequency baluns and mixer
US04079415 03/14/1978 Frequency translator
US04063176 12/13/1977 Broadband high frequency mixer
From patents.ibm.com
**The Chinese government**granted the Company patent protection for its
commercial products, clearing the way for the Company to proceed with
a sales and distribution joint venture with a Chinese, State-run
company.
- The Company was awarded two U.S. patents covering breakthrough
technology that enables lower-cost, high-volume production of
advanced, high-frequency components formerly manufactured in a high-
cost, labor-intensive environment.
- The Company was awarded a U.S. patent for a high-impedance, wide-band
transformer circuit, strengthening the Company's technological base
for expanding into the fiber-optic marketplace.
Switching costs? I gotta do more digging
Enabling technology
Value chain component of others for now, but any transmission of RF will probably use a VCO in some fashion (if I got that right, so if it takes of the value chain will form around them.
Summary stolen from Yahoo board
I believe that if you keep a list of top (no relation) reasons to own a stock, you are more likely to own for the long haul (and bigger return). Following is a quick
summary of some of the key attractions of VARL to me (much of which is based on VARL documents/web site and Board posts):
Growth in wireless internationally (developing nations in particular where legacy infrastucture is not an issue)
China granted patent protection…way for sales/distribution venture now cleared
Small electronics components is core competency; base for expansion into other markets (eg., fiber optics)
Patented product technology, technology awards
Wireless, satellite, fiberoptics
Signal processing products (subsciber/commercial/industrial/military/aerospace)
Use in hand-helds (phones, pagers, PCS, etc.) and broadband especially attractive
Base station technology
Technology requires very low input power requirements vs. competitor products
Move from Defense to commercial applications (= high quality, performance & reliability standards)
International in scope
Is often a sole-source supplier, ensuring long-term relationships
Commercial customer list reads like a Who's-Who (Lucent, Nokia, Phillips, Ericsson)
Defense customer list reads like a Who's-Who (Hughes, Harris, Raytheon, Lockheed)
Subscriber customer list reads like a Defense Who's-Who (Motorola, Samsung)
Nokia and Motorola are "10% or larger" customers (doing well themselves)
Rumors of major new contracts
Low-cost, high-volume production due to patented processes
Possible takeover candidate?
Sales and earnings growth is rapid (potentially explosive going forward?)
FY2000 earnings est = $1.50 after major contracts (Topshelfstuff estimate)
Industry PE = 63.2…..so….. 63.2 x 1.50 = $95 per share
Increasing backlog/demand
Analyst coverage
Investor Business Daily ranking -- #58 of 200 Best Tech Stocks
Submitted as young king but my interest is in its princely subscriber business. I am making a big mistake posting this to Buckley. Go to bed Mike
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