Hi all, I tried to call David Archibald, the CFO of VLNC, today, to
learn more about the company, but he was out of the office until
next week. When I tried to call VLNC's competitors, I was kind
of intimidated by the long list, over 30 of them. The US competitors
are easy, but the Sony and Toshiba, etc. of Japan are hard to contact.
I don't speak Japanese, and I don't even know whether they
are receptive to investor enquiries. So I think I am going to let this
one pass. I don't like getting into a stock without knowing the competition.
However, I have been studying the other pick by Wallenchuck, IDTI. For
those of you who don't have a position in IDTI, I strongly
suggest taking a look at it, if only for the purpose
of diversification. I
live only a few miles away from this company, and I have several friends who work in the semiconductor industry. So I know a
lot about this company even before I started digging deep. This is an
excellent company, well established, having a diversifed product mix,
and annual revenues of over half a billion $. The company used to make
mostly SRAM chips, a commodity product, but the memory chip glut last year killed stock. It went to as low as $7, the book value of the
company. But since then, the company has diversified its product line into many other areas, and now SRAM accounts for less than 50% of
its revenues. Recently the company announced a Pentium clone, called
C6. It is supposely competing with the Pentium, but a lot cheaper to
make. I don't know whether Wallenchuck recommended IDTI because of the
C6. If he did, then he may have recommended the right stock for the wrong reason. I think the C6 is already obsolete before it even hit
the market. It seriously underperforms the Pentium Pro and Pentium II,
the K6 from AMD, and the M2 from Cyrix. Even though the C6 is cheaper to make, the majority of people will be willing to pay a little more for a more powerful chip. Also IDTI may face a lawsuit from Intel
over the C6. But I like IDTI even without C6. I think the other
product lines will carry IDTI to much higher levels. C6 will at best contribute a very small percentage of the revenues.
So here I am going to compare IDTI with VLNC as potential investment
choices. Both have similar upside potential, i.e., several fold price
appreciation over the next several years. But the downside is vastly different between the two. I will compare the two side by side
here:
IDTI VLNC
Well established, excellent ???
reputation and proven management.
Proven revnues and earnings. ???
Diversified product lines, won't One (potential) product, big
get killed if C6 or any other trouble if anything goes
Product line doesn't make it. wrong.
Less than 50% revenue from Commodity product only
commodity products (SRAM)
Very innovative company, new ???
product introductions all the
time.
Price to book less than 2, good Price to book over 4 and book
support under the most adverse value will keep declining until
market conditions. the company can breakeven.
Well followed by Wall Street No analyst coverage, at least
analysts, price not swayed too according to Zacks.
much by rumors, hypes and
manipulations.
Options available, easy to hedge No options available, can't
against downside risk. protect from downside risk.
So these are just some of the risk measures I could think of at the moment. I begin to wonder why Wallenchuck recommended two
different stocks with such different risk profiles. Maybe he is
hedging his bet on VLNC so that if something goes wrong he has IDTI to
fall back on? Without knowing the reasons why he recommended IDTI, I can only speculate.
Since IDTI has similar upside potential as VLNC but far less risk, I
am going with IDTI. I may want to wait until after the summer slowdown
hits before I take a position in IDTI. The summer swoon has occured in
11 of the last 14 years, and the chance that it happens again this summer is excellent. Technology stocks, especially small caps,
get hit the hardest in the summer months where the slowdown happens.
So I think I will wait for a better entry point. Maybe 10 to 11 is
good enough (it currently trades in the 13 range).
Oh, one more thing, there have been insiders buying IDTI stock on the
open market, suggesting that management has confidence in the
company's future and willing to bet their own money on it. I have not
seen insiders buying VLNC stock.
So I will not visit VLNC thread again for a while. Good luck to everyone.
Best regards,
Xingbo |
