Aw shucks ... now ya got me all embarrassed :o)
Met Sword on the SMTC thread, I truly respect his knowledge. Share a common respect for family, high-tech, and rational investing combining technical and fundamental factors.
I still remember explaining to him how I "smoke-tested" experimental electronics designs in college; we talked once about experimenting with some fiber modem chips from SMTC, maybe develop a product or two.
Wow, actually I still like POWI first, SMTC second, and GMST third. Must admit I was really hot on GMST a year ago, did nothing about it, got re-acquainted with it when a sharp friend bought in. You'll do well with both GMST and POWI; if you have time, I see POWI being a $12B company in 4 or so years, which should easily make it a 10-bagger.
Good move on the $42, much more upward pressure coming. Analyst reports, MACD crossover coming, you'll be happily up $10 before you know it, probably more. If it's like last time, it might have to take one more dip, maybe all the way back down to $40 before moving on, but no big deal, just one more buy opportunity. Get me to $200 oh Great Swammi, and I'm ditching too :o)
At the expense of clogging bandwidth (wtf, I got ADSL, it's the sorry suckers with 28.8 connects that are gonna hate me), as well as helping ya do your DD, here is excellent analyst input from recent research on POWI. Actually, not much of a fan of analysts, BUT I DO RESPECT Arun Veerappen, he's followed SMTC and he knows analog companies pretty well. Little jumpy sometimes with the ratings, but I guess it's a hard business, and all part of the dynamics (yeah ... right :o)
Cut & Paste to follow, happy reading dude!
Robbertson Stephens Research on POWI!
11:36pm EST 6-Feb-00 Robertson Stephens (Veerappan, Arun 415-693-3391) POWI
February 07, 2000
P O W E R I N T E G R A T I O N S
We Believe Business Fundamentals and Technology Positioning
Remain Strong; Reiterate Buy Rating...
Arun Veerappan (415) 693-3391 arun_veerappan@rsco.com
Tore Svanberg (415) 248-4266 tore_svanberg@rsco.com
Robertson Stephens Robertson Stephens
Power Integrations Inc. POWI $41.13 2/7/00
Industry: Semiconductor
CHANGE IN... Yes/No WAS IS Arun Veerappan (415) 693-3391
...Rating: No BUY Tore Svanberg (415) 248-4266
..EPS 1998A: Actual $0.66
..EPS 1999E: No $0.86 FYE: DEC 1999A 2000E 2001E
..EPS 2000E: No $1.10 EPS: 1Q $0.14 $0.18 $0.23
52-Week Range: $68-$10 2Q $0.14 $0.19 $0.24
Shares Out. (MM): 28.9 3Q $0.18 $0.25 $0.31
Market Cap: $1,189 4Q $0.20 $0.25 $0.31
Avg Daily Volume (000): 1,226.7 Year $0.66 $0.86 $1.10
12/99 BK Value/Sh. $2.78 P/E 62.3x 47.8x 37.5x
12/99 Tot Debt/Tot Cap: 3% Rev($M): 1999A 2000E 2001E
12/99 ROE: 37% 1Q $20.8 $29.5 $38.8
Price/Book Value: 14.8x 2Q $23.0 $31.9 $40.7
12/99 Net Cash/Sh: $2.04 3Q $30.1 $39.2 $48.9
Dividend/Yield: NA 4Q $30.1 $40.0 $49.9
3-Yr Sec Growth Rt: 20-25% Year $104.1 $140.6 $178.3
* EPS @ 35% tax rate shown. EqtyMktVl/Rev 8.5x 6.7x
** We would like to review the Power Integrations (POWI) opportunity in light
of the stock's sell-off over the recent few weeks. While POWI stock is
trading at a level that is 42% off its high (see chart on page 3), in
comparison, the RSAI (Robertson Stephens Analog Index) is trading at 6%
below its high and the Nasdaq is trading at 2% below its high.
** Power Integrations is a premier manufacturer of AC-DC conversion circuits.
We believe that the company's current product and technology positioning
remain strong even as new product activity points to the potential for the
company to further distance itself from its peers.
** In this report, we plant to explore the reasons for the sell off in POWI
stock. In this report, while recognizing that our estimates for the March
quarter remain solid but hold the potential only for minimal upside at
current time, we wish to make a case for our recommendation and reiteration
of our Buy rating on POWI stock.
** Our recommendation is based on the belief that Power Integrations' business
fundamentals and technology positioning remain strong and our further belief
that as POWI enters the second half, its seasonally stronger period, we
expect the company to once again outpace investor expectations.
** Power Integrations stock has sold off for two main reasons, in our view:
1. Historically, when reporting quarterly earnings, the company had always
reported a considerable upside to estimates; but for the December quarter,
the company essentially reported EPS results that were in-line with the
Street consensus estimate.
2. Motorola (MOT $156) has been a customer and competitor indicated again (as
it has done from time-to-time) that it could potentially no longer buy
product from Power Integrations sometime during the March quarter. We would
like to recall that during 1999 Power Integrations sued Motorola for patent
infringements and that the company finally got a favorable verdict late in
the year, essentially indicating that Motorola had willfully infringed one
of Power Integrations' patents for its high-voltage power conversion
integrated circuits. In fact, the judge even awarded damages to Power
Integrations to the tune of $30+ million.
** As we look at the actual situation, we firmly believe that business
fundamentals and technology positioning at Power Integrations remain strong.
** However, we must recognize the seasonal nature of the company's business:
the revenue peak occurs during the September quarter, followed by
essentially flat December and March quarters and with the beginnings of a
pick-up during the June quarter. In fact, when looking at Power Integrations
performance on average over the last two years (1998 and 1999), the
September quarter grew 33% sequentially, the December quarter was
essentially flat sequentially, the March quarter declined 2% sequentially
and the June quarter grew 8% sequentially. The year ahead appears to be no
different and we believe that the immediate March quarter will likely be
flattish as we have modeled and that Power Integrations will perform to
those estimates with minimum upside as of writing.
Figure 1: Quarterly Revenue Performance And Expectations (%)
1998 1999 1998-98 Avg. 2000E
Q1 (March) -7.0% 3.3% -1.9% -2.0%
Q2 (June) 4.6% 10.4% 7.5% 8.0%
Q3 (Sep.) 34.4% 31.2% 32.8% 23.0%
Q4 (Dec.) -0.8% 0.0% -0.4% 2.0%
Total Year 52.3% 48.6% 50.5% 35.1%
Source: Company reports and Robertson Stephens estimates.
** To the question as to why Power Integrations essentially delivered to
printed Street consensus estimates for the December quarter as opposed to
delivering the kind of upside that it has done in the past several quarters,
our take is as follows: upside is achieved through two avenues: a) by
beating expectations due to strong business trends that are above set
expectations and b) by beating expectations through a conservative model of
setting expectations based on the 'under promise/over deliver' methodology.
We believe that Power Integrations has been able to beat expectations in the
past several quarters due to both of the above mentioned reasons. In the
December quarter however, Power Integrations, in our view, was able to beat
our EPS estimate by (only?) one penny because a) expectations had been
gradually ratcheted up by sell side analysts which when viewed in
combination with the company's recent stock split essentially rendered the
'under promise/over deliver' methodology meaningless and b) the company's PC
Standby business, which in the past years had driven second half revenue (in
conjunction with the wireless business), was essentially flat this year as
the power supply feature requirements for this market changed even as
discrete solutions became more effective due to lower pricing.
** With regards to Motorola, in particular, we wish to keep in mind that while
Motorola has consistently indicated that it will no longer ship products
using Power Integrations' components for some time now, what has merely been
happening, in our view, is a shift in consumption of Power Integration's
product by indirect charger manufacturers that in turn sell products to
Motorola. We believe the same could happen this time around as well and that
new customers could layer on to grow Power Integrations wireless business at
an attractive clip.
** We remain firm in the belief that the seasonal pattern will continue this
year as well and that the September quarter will be yet another strong
quarter for the company because:
1. Power Integrations' technology positioning remains at a high with new
product introductions that could potentially serve to distance itself from
its closest competitors. New products at Power Integrations (TinySwitch and
the in development TopIIIG) are suited to compete even more effectively
against discretes in an environment where discrete pricing is actually on
the RISE!
2. Such product, we believe, could expand the scope of Power Integrations
market opportunity well beyond its current opportunity set into new areas
such as the entire gamut of computer peripherals including printers. In
addition, we believe that Power Integrations could reengage in the desktop
standby marketplace as well and gain share in 2H:00.
3. We believe that Power Integrations has a forward looking management team
that will, from its current position of strength, seek to resolve the
Motorola issue in an amicable manner, as stated consistently in public.
4. We believe that Power Integrations will prove to be a large and powerful
beneficiary of growth in the wireless market due to the compelling value
proposition of the company's technology for this market. We believe that the
company's customer base in the wireless is solidly diversified to include
such important players as Ericsson, Motorola, Nokia and Samsung.
** We recognize fully that while firm, there could be minimal upside to our
estimates for the March quarter at the current time. But we believe that
this has already been factored into POWI stock. Given this, we wish to take
this opportunity to communicate to investors the strength of the Power
Integrations franchise and our inherent belief that the company will once
again experience its seasonal strength in the second half of the year,
beginning as early as the June quarter. As such, we view the recent sell-off
of the company's stock as a timely opportunity for investors to get involved
in a company that could continue to execute strongly again in 2000 as it has
done in its previous two years as a public entity.
** As such, we reiterate our Buy rating on POWI stock.
Figure 2: Pure-play Analog Companies Comparable Valuation Table
Company Ticker Price P/E C98 P/E C99 P/E C00 P/S P/BV Off High
Burr-Brown BBRC $44.00 46.8x 38.3x 28.4x 9.1x 8.0x 4%
Elantec ELNT $43.13 134.8x 75.7x 51.3x 8.0x 13.7x 5%
Linear Tech. LLTC $101.44 86.1x 72.1x 55.9x 26.4x 15.3x 1%
Maxim MXIM $55.06 86.5x 77.1x 55.8x 21.6x 26.3x 0%
Micrel MCRL $77.38 126.4x 93.5x 63.0x 24.0x 23.9x 3%
Semiconductor
Power Integrations POWI $41.13 110.0x 62.3x 47.8x 10.5x 14.8x 40%
Semtech SMTC $64.81 158.0x 78.8x 52.9x 20.1x 19.2x 6%
Sipex SIPX $22.63 34.8x 49.2x 31.4x 6.3x 4.1x 18%
Telcom TLCM $21.75 87.0x 49.4x 32.0x 5.8x 9.2x 22%
Semiconductor
AVERAGE 96.7x 66.3x 46.5x 14.6x 15.0x 11%
Source: Bridge, Company reports, First-Call and Robertson Stephens estimates.
THE COMPANY: Founded in 1988, Power Integrations manufactures ICs that convert
incoming alternating current (AC) to direct current (DC) for use in electronic
systems. Under a new management team, the company has focused on the Cellular
Phone, PC Standby, Set-Top Box, PC Peripheral and Consumer markets. Power
Integrations is located in Sunnyvale, California and employs approximately 120
people worldwide.
INVESTMENT THESIS: Our investment thesis on Power Integrations stock is based
on the following factors:
1. The market for power conversion devices is potentially huge and runs into
multiple hundreds of millions of units, for a given power range. In our
view. the market growth for power conversion device manufacturers therefore
can arise not only from the inherent growth of the market but can also arise
should the power range of the power conversion device extend beyond current
levels cost effectively.
2. When cost effective, highly integrated switching regulators are the system
design engineer's choice as power conversion ICs due to their inherent size,
weight and efficiency advantages as well as their ability to accept a wide
range of input AC voltages.
3. With the power conversion market currently dominated by older discrete and
linear solutions, the potential for cost effective and integrated switching
devices to penetrate the installed base and rapidly gain market share
remains strong.
4. Power Integrations is the market leader in integrated switching power
conversion chips and as such was the first to market with its "TOPSwitch"
IC.
INVESTMENT RISKS: Among the risks are the cyclical nature of the semiconductor
market and the seasonality of the consumer markets with unpredictable pricing
trends. Customer concentration is also a risk, as the company's top customer,
Motorola, accounts for approximately 24% of sales. Competitive product entries
from players such as STMicroelectronics (STM $206 5/16), Samsung, Sanken and
Motorola are also a risk. On a geographical basis, approximately 76% of sales
are derived internationally, with approximately 60% coming from Asia.
Additionally, the company manufactures, assembles and packages its products
through third parties and as such, needs to ensure uninterrupted supply from
these parties. Also, about 2% of the company's revenues are derived from
royalty and license payments by its foundries, and the continuation of this
revenue stream is critical as it filters directly down to the gross profit
line.
Unless otherwise noted, prices are as of Friday, February 4, 2000.
Robertson Stephens maintains a market in the shares of LM Ericcson; Linear
Technology Corporation; Maxim Integrated Products, Inc.; Micrel, Inc.; Power
Integrations; and Semtech Corporation and has been a managing or comanaging
underwriter for or has privately placed securities of Power Integrations within
the past three years.
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All rights reserved. 888.558.2500
Feb-07-2000 04:37 GMT
Symbols:
US;POWI
Source FCI First Call International
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
BAM, THERE YOU GO DUDE :o)
Regards, JB |
