Here's S+P's commentary on MCRL:
Overview 28-AUG-02
We expect revenue to rise 8% in 2002, and to grow over 25% in 2003, as the economy comes back more decisively. The book-to-bill ratio is above 1.0, indicating a good probability of continued sequential revenue growth through 2002. However, order lead times remain short, and earnings visibility is limited. During the 2002 second quarter, the company introduced 22 new products for the networking, communication, and handheld device (cell phones, PDAs, etc.) markets. In July, directors authorized the repurchase of up to $40 million of common stock in 2002; a $20 million buyback plan announced in February 2002 has been fulfilled, resulting in the repurchase of more than 1 million common shares. Profit margins are improving from low levels. We project pro forma 2002 EPS of $0.02, with improvement to $0.25 seen for 2003.
Valuation 28-AUG-02
The shares fell to a 52-week low in the summer, as most technology hardware markets experienced soft demand. We believe the computer market will show modest improvement in the second half of 2002, with a slower recovery for the communications market. Although the company's long-term prospects should improve as the cyclical semiconductor industry moves into an expansion cycle, we are taking a cautious view of the shares, in light of the fact that about 43% of sales come from communications markets. The company has low levels of long term debt, and is buying back shares, both positive factors. The shares, trading at about 3.9X tangible book value, are valued somewhat above those of most chip companies, but in line with those of other high-end analog chipmakers. We remain neutral on the stock until signs of growth in MCRL's end markets become more evident.
Business Summary 28-AUG-02
Micrel (which also does business as Micrel Semiconductor) designs, manufactures and markets high-performance analog power integrated circuits (ICs) and mixed signal and digital integrated circuits.
The company currently ships more than 1,400 standard products. It derived the majority of its product revenues in recent years (84% in 2001, up from 79% in 2000) from sales of standard analog ICs for power management. These analog power circuits are used in a wide variety of electronic products, including those in the communications, computer and industrial markets. A strategy focusing on standard products has allowed Micrel to address larger markets and broaden its customer base. In 2001, one customer, Galaxy, accounted for 11% of sales. In 2000, a distributor, Future Electronics, accounted for 10% of sales.
In addition to standard products, Micrel manufactures custom analog and mixed-signal circuits, and provides wafer foundry services for a diverse range of customers that produce electronic systems for communications, consumer and military applications. Sales from custom and foundry products represented 16% of 2001 sales (21% of 2000 sales).
Trends in the communications and computing markets have created increased demand for power analog circuits, which control, regulate, convert and route voltage and current in electronic systems. Demand for power analog circuits has been fueled by the growth of battery powered cellular telephones and computing devices, and the emergence of lower voltage microprocessors and Personal Computer Memory Card International Association (PCMCIA) standards for peripheral devices.
In May 2001, Micrel acquired Kendin Communications, a fabless designer of ICs for the communications and networking markets, in exchange for 6.1 million common shares (about $215 million). The addition of Kendin enabled entry into the ethernet market with switch products, as well as entry into the enterprise networking market.
International markets offered some useful geographic diversification during the downturn in American communications equipment markets in 2001. Sales to North America accounted for 39% of sales in 2001 (58% in 2000), with the remainder coming from Asia 50% (32%), and Europe 10% (11%).
The company produces most of its wafers at its own six-inch wafer fabrication plants in San Jose and Santa Clara, CA, and contracts out a small percentage of production to foundries. Almost all the company's long-lived assets are located in the U.S. |
