Lately IBD has been writing up some powercosm companies. At end of Sept they did an article about Advanced Power and today I found the following article about PWER. donnacat
The New America
Thursday, October 5, 2000
Buyouts Help Electronics Firm Stay Charged
By Vance Cariaga
Investor's Business Daily
Given the new economy’s fascination with cutting-edge technology and ideas, it’s easy to forget that some of the most effective growth strategies are also the oldest.
You target a market. You find out who the players are. Then you buy them.
Power-One Inc. is a case in point. The maker of electronic power supplies is seeing triple-digit sales and earnings growth. Much of its success is due to a handful of buyouts that helped it find new users of its power conversion systems.
Power-One’s systems convert raw electricity into juice that can power high-tech gear. A few years ago, the company’s main clients were chipmakers and computer makers. Power-One was turning a profit, but it wasn’t turning too many heads.
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“We knew we had to transform ourselves,” said Steven Goldman, the company’s chief executive. “To do that, we knew we had to put additional capital into the company and scout acquisition opportunities.”
Power-One got extra cash in 1995 with the arrival of new senior management and new investors. It got buyout opportunities by shifting its focus to telecommunications clients.
“We saw the telecom wave coming, and we knew telecom companies would need DC power to make their systems,” Goldman said. “So we put together a plan to buy companies that served the market.”
Since 1998, Power-One has purchased four companies, each specializing in telecom systems. Sales to telecom clients now comprise more than 70% of overall revenue, up from 10% a few years ago.
“It sounds simple, but the story of Power-One is really a story of growth through acquisitions,” said Robertson Stephens analyst J. Keith Dunne. “They’ve done a terrific job of remaking themselves.”
Power-One’s systems are designed to convert raw electrical current - the kind that runs through most wall outlets - into lower-voltage electricity needed to power computer and telecom gear. Large power systems can cost up to $1 million. But that hasn’t stopped clients from placing orders at a breakneck pace.
“We’ve seen demand explode, and that’s primarily because of the growth in bandwidth,” Goldman said. “You need more file servers, switches, routers, hubs. These all require low-voltage DC power. The conventional ways of distributing power no longer work.”
Demand for new power systems isn’t expected to slow soon. According to industry data, the global market for power supplies in 1999 was $22 billion. It’s expected to rise to $34 billion by 2004.
Analysts say Power-One has positioned itself to compete by targeting the right buyout opportunities. The company’s purchase of HC Power Inc., completed in March, brought clients such as Nextel Communications Inc. and Qwest Communications International Inc.
In March, it announced plans to buy Powec AS, a Norway-based manufacturer that makes systems for European telecom giants such as L.M. Ericsson, Nokia Corp. and Telenor AS. Previous purchases include the 1999 buyout of International Power Devices Inc. and the 1998 purchase of Switzerland-based Melcher Holding AG.
Analyst Dunne says the International Power deal was important because Power-One could broaden its relationship with Cisco Systems Inc., the company’s biggest client.
“The acquisition was a virtual home run for them because it convinced Cisco to deliver more business,” Dunne said. “Before the buyout, Cisco was getting too big a percentage of (International Power’s) revenue base. That ceased being a problem when they were folded into Power-One. When Power-One bought (International Power) it was doing about $30 million in annual sales. Six months later, it was doing $30 million a quarter.”
That kind of sales boost has allowed Power-One to finance much of its acquisition program through cash flow. The company has spent more than $200 million in cash and stock on purchases - a hefty sum, considering its annual sales didn’t top $100 million until two years ago.
But Power-One’s debt load remains minimal. The company also has a $200 million line of credit for future purchases, which Goldman hints will be announced in the near future.
“We’re looking to round out our product line,” he said. “Our goal is to be a one-stop shop, and right now we’re probably 80% of the way there.”
For now, the company’s biggest challenge is just keeping pace with orders. It has ramped up manufacturing through new and expanded facilities. But analysts say it will need to add plant space next year.
“They recently installed new lines that will help in the fourth quarter and early 2001, but it’s still limited,” Dunne said. “It’s an ongoing process that remains a challenge.”
The increased demand is reflected in Power-One’s recent financial performance. The company logged second-quarter sales of $113.8 million, up 120% over a year ago. Earnings gained 367% to 14 cents a share following a recent 2-for-1 stock split.
Analysts polled by First Call predict that earnings for the year will climb 208% to 80 cents a share. The company’s stock trades as PWER near 62.
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