In my opinion investing in Siii at this point is entirely a play on management. There has been a lot of speculation over the last
couple of days about the future of Siii and the industry as a whole. I think it is clear that the graphics industry will continue to grow for some time, Siii's competitors TDFX and ATI are experiencing tremendous growth, money WILL be made. So the question is, is Siii management up to the task?
For good reasons many here are very down on management. However, it should be remembered that prior to 1997 Siii was one of the fastest growing companies in the electronics industry, they stole the lead from the previous market leader. There is a history of the leadership in this industry trading hands, the OEMs and the boardmakers are not loyal. Therefore, I do not believe the doom and gloom of some who say that it is virtually impossible for Siii to recover their previous glory. It is very possible, they can be very profitable and they won't even need to have 50% of the industry.
So, will they do it? No one knows the answer to this question but they have several things in their favor. The number one is that even though they had a bad year their balance sheet is very strong. They survived their bad year in reasonably good shape, they are not going out of business tomorrow. The number two is that they are spending a lot on R&D. Of course dollars spent don't guarantee good products but it means they have a chance to gain back the technological advantage. They are far from down and out, they are merely down.
Now a point about investor psychology. It is hard to invest in a beaten down company and it is easy to point out the companies past mistakes. However, beaten down companies often represent opportunity. With this opportunity comes a great deal of risk (but what tech stock with a market cap of under a few billion is not risky?). I can't say I have enjoyed Siii's slide, but when I bought in I was always aware of the possibility that it could happen, it is the nature of these types of companies. If you don't like risk buy gillette and GE. If you have faith in the management and you are prepared for a wild ride buy Siii. If you think the management are a bunch of crooks who are not fit to clean Bill Gates' toilet then stay away. Personally I found some aspects of the last conference call reassuring but was a bit disppointed that they didn't articulate a plan for dealing with the increased competition on the horizon. Perhaps they have no such plan.
One last point, if I didn't already Siii would I bye in now? Answer: probably not in any substantial way.
Phil
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