BB,<< MXIM>>
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From Fortune Magazine, latest issue -
"..Not all tech stocks were affected by this year's selloff. Semiconductor companies like Semtech (No. 11), Maxim (No. 48), and Altera (No. 51) simply blasted right through it. (One caveat: Altera's shares recently took a hit when it announced third-quarter revenues would come in below expectations.) All three enjoy leading market shares and are growing faster than their industries. And given their growth prospects, their P/Es--hovering around 30--don't seem all that out of line.
What makes a company like Maxim so attractive is that it is protected from the ups and downs of the PC business cycle. Maxim sells its chips to many different industries, from communications to consumer electronics. "The PCs are only half the market," points out Maxim CEO Jack Gifford. The Sunnyvale, Cal., company makes a whole slew of highly differentiated analog chips that amplify and regulate voltage levels in everything from laptops and cellular phones to the docking module on the space shuttle. (No, its chips were not implicated in the Russian space station Mir accident.) It also makes chips that translate information from the analog world--sounds, temperatures, or pressure--into the digital realm. As microprocessor technology originally developed for PCs migrates to more mundane consumer-electronics goods like cameras, the need for such translation multiplies. Cowen & Co. analyst Drew Peck thinks the analog portion of the semiconductor market can expand 23% annually over the next few years, for the first time surpassing the 18% growth rate enjoyed by the rest of the industry.
And new competitors are not much of a threat, since Maxim and two or three other analog-chip companies control a very scarce resource: analog-semiconductor engineers. (These guys are a much rarer breed than digital engineers.) Also, analog-chip design is nearly an art form and is hard for newcomers to master. The upshot for Maxim: gross margins higher than Intel's. Gifford has managed the financial performance of his company adroitly, boasting 45 consecutive quarters of profitability and 50% annual stock returns over the past ten years."
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The other issue for MXIM and LLTC (even more profitable) is a very low cost for capital equipment as new plants need only be for 6 inch wafers and are easily paid for out of earnings or a small fraction of available cash.
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Regards, Don |
