The Texas Edition of the Wall Street Journal talks about BMRQ
It reads something like this....
"...New Products May Spur An Upturn For Chip Maker Benchmarq
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Semiconductor manufacturer Benchmarq
Microelectronics is banking its future on the belief that users of
laptop computers, cellular phones, power tools and other electronic
goods will want to know precisely how much power they have left on their
batteries - a feature not widely offered today, the Texas edition of The
Wall Street Journal reported Wednesday.
And analysts say it looks like a good bet. Investors of Dallas-based
Benchmarq began fleeing the stock last fall because of troubles with
Asian orders for the company's older lines of memory circuits and
modules. The stock sank to a low of $10.50 in January, down from $36.25
just before the company announced in September that the problems would
be a drag on earnings.
But there is compelling evidence that the stock will recapture its
former glory as investors realize that the company's troubled line of
memory products isn't as important to its outlook as the budding
battery-product line. The shares now trade at $16.50, and investors who
bought at the low have already reaped enviable gains.
"People are realizing that the part of the business that the stock
has been trading downward on is not the core of the company," says Cody
Acree, an analyst at Southwest Securities in Dallas, who initiated a
"buy" rating on the stock in November. He thinks Benchmarq will still
hit $25 within the next 12 months.
The latest product line, which the company calls a "gas gauge,"
measures a battery's power reserve in hours and minutes. Battery
manufacturers are increasingly looking to contract with outsiders as a
cost-efficient way to offer this feature, and Benchmarq has emerged as
the industry leader.
This nascent market, along with sales of integrated circuits that
maximize battery life and prevent overheating by regulating the flow of
electric power from batteries, now represents the fastest-growing part
of Benchmarq's business.
In 1997, battery-management sales grew nearly 30%, to $23.3 million
from $18 million a year earlier, and accounted for 53% of Benchmarq's
$44.4 million in revenue. In the fourth quarter alone, such sales grew
15% from the previous quarter, reaching $7.1 million.
Analysts see continued strong demand for battery-management products.
Judging from at least one independent study, by research firm
International Data Corp. of Framingham, Mass., maximizing battery life
is even more important to laptop users than high speeds or memory
capacity, with nearly three-quarters of those surveyed ranking it at the
top of their priority lists.
For Benchmarq, Acree projects that battery-management sales will
climb 53% for 1998, to $35.6 million, or more than 70% of Benchmarq's
projected revenue. Meanwhile, the company gradually is cutting back on
its less-profitable memory circuits, the revenue from which he projects
will decline 31% to $14.4 million in 1998, following a 5% decline last
year.
Problems with the company first surfaced Sept. 25, when the company
announced that its third-quarter earnings would be about 10% less than
the quarter before, after several Asian customers unexpectedly canceled
orders for its two so-called nonvolatile memory products. (One preserves
unsaved computer files; the other helps computers keep track of the time
and date.)
Then, last month, the company announced it was taking a
five-cent-a-share charge during the fourth quarter, on the likelihood
that it would have to absorb added bad debts from cash-strained Korean
customers. The company wound up earning 21 cents a diluted share, three
cents below analysts' expectations.
Nonetheless, Acree argues that the company's growth trend remains
intact, despite reporting a 10% drop in 1997 earnings, to 86 cents a
share on a diluted basis. He notes that in 1996, the company still had
tax-loss carry-forwards on its books from when it went public in
December 1995. Without that tax benefit in the prior year, Benchmarq's
1997 earnings would have represented a 37% increase from 1996. Even
given that growth, the stock looks cheap compared with its trailing
price-earnings ratio of 19.2, he says.
Acree expects Benchmarq to earn $1.02 a diluted share for 1998, which
would be a 16% increase over last year. But over the next three years,
once battery-management sales begin to account for more than 80% of the
company's revenue, he and others estimate that per-share earnings should
escalate at a better than 30% clip.
"As long as they keep posting this consistent growth in the
battery-management area, and they seem to get a better handle on the
nonvolatiles division, that's going to really attract people back to the
stock," says Brett Brandenberg, an analyst at Kenny Securities in St.
Louis, who has a "buy" rating on the stock and a $25 12-month price
target.
True, there are several risks to consider. Benchmarq is a thinly
traded stock, with just over 100,000 shares in average daily trading
volume. That tends to increase price volatility.
Plus, this is a company that disappointed for two consecutive
quarters. Investors have been fretting over the company's memory
products and the 55% of Benchmarq's revenue that came from Asian
customers last year.
But Brandenberg and Acree say concerns about Benchmarq's exposure to
Asia are exaggerated. The troubles in Asia have affected only the memory
products, which are being scaled back anyway, while battery-management
sales have remained strong even to Far Eastern customers. Those
customers sell the vast majority of batteries containing Benchmarq
circuits in the U.S. and Europe, where demand for the end product
remains strong.
The next event to watch for, Brandenberg and Acree say, should come
in the next month or so. Benchmarq executives have been telling
investors privately for several weeks that they have signed the
company's first contract to provide gas gauges to cell-phone battery
makers. The company won't say who the buyer is, and Benchmarq executives
didn't return phone calls seeking comment.
The two analysts say they won't factor that business into their
forecasts until they learn how large the customer is. The announcement
is expected at a telecommunications trade show by the end of March...." |
