IDTI can't supply a major OEM with enough parts. They can't even make enough to supply their distribution and 2nd and 3rd tier accounts. The negatives of supplying to an OEM is that large orders mean low prices, particularly in a competitive, commodity type market.
There has to be a certain amount of truth to the rumors that IDT has had problems in their Oregon fab. Otherwise we would have seen a faster ramp in production of the c6.
Since IDT announced the C6 almost a year ago, the company has fallen short on promises to deliver in quantity and to scale in Mhz. Both of these things have effected the ability to sell parts, sign a major OEM, and get attractive ASPs (Average Selling Price) for the parts. IDT has been "sucking hind tit" (the runt of the litter, unable to nudge competitors out of the way to stay on the fat tit). Investors had hoped that situation would have changed by now. But with the aggressive price and product ramps from Intel, AMD and NSM, IDTI has had trouble delivering what the market wants in quantity or at a profitable price point. So, investors have seen the stock price sink.
However, there is reason to be "cautiously optimistic":
1] The stock is in the range of the historical lows.
2] The damage to management credibility for "forward guidance" on product ramps and, therefore, sales and earnings has taken it's toll on the stock price. And,
3] the earnings estimates for this quarter and next have been dropped by most analysts. As such, the shit has already hit the fan and any improvement in sales and earnings outlook should have a positive effect.
4] IDT has commenced the fab relationship with IBM which will help to asure product flow and sink deals with major OEMs.
5] Centaur is moving aggressively on multiple design paths for the WinChip family, including integrated NorthBridge and advanced 3D designs. (Let's hope that IDT+IBM are capable of doing justice to Glen Henry's and his team's design genius).
6] Eventually, IDT should be able to get some "significant" production out of the Oregon fab that turns the unit's cash flow to positive. Hopefully that will happen by next quarter as the company indicated in their last conference call. It should be at about break even this quarter.
7] Investor sentiment is at or near a low point. My read on this is that things could still get worse if tech stocks crumble or the company can't deliver on the reduced expectations for this and next quarter. But "buy at the peak of despair" is a good axiom for investing in IDTI at this point - I can't pick the absolute "inflection point" with a degree of certainty, but the signs are here from a historical TA and a "finger in the wind" reading of sentiment.
There is still some risk because we don't know how well things are going with the product ramps either at IDT or at IBM. Clear Logic has yet to announce results or new product introductions. There still can be a "bombshell" announcement of worse than expected results for this quarter. We know that the C6 is selling for around $45, about 25% less than last quarter. Given the minimal contribution to sales so far, this is still a small part of the earnings equation. The over-riding fear factor may be the effect of downward trending prices in uPs and other PC components. Because these make up a large part of overall semi sales, and the market tends to do a poor job of separating the "wheat from the chaff", the semi sector may suffer as Intel reports lower and lower margins and earnings over the next couple of quarters. The overall climate for semis is likely to be tainted by the same brush, IMO.
The silver lining will probably come by the end of September. To take advantage of that, I will be investing in the semi and semi equipment sectors in July and August and will be trading on over-reactions until then - why I bought some IDTI last week. |
