It's good to have some humor on the thread . . .
Part of the shortfall IDT has experienced the past couple of quarters, as recently confirmed in a conversation with Mike Tierney, is that when the pricing dropped out of the low end uPs - the 200 Mhz and 233 Mhz flavors, IDT didn't think it was worthwhile to maintain the focus of engineering and plant resources on bumping the speed grade of the WC 1 processor. With declining ASPs and mild market enthusiasm for the throttled back performance of the WC 1, engineering resources were diverted away toward the WC 2 and latter developments. This increased the shortfall already in the works because of industry wide price competition pressure brought on by inventory and seasonal fluctuations compounded by the slow-down in Asia and coincided with a topping of the tech stocks. Wham, wham, wham . . . a tripple whammy on IDT's share price ensued - striking deeper than I had expected might happen (my 9 dollar bottom target for July).
A large part of the increased price competition is because Intel has reacted strongly to mount a defense of their core business. Intel went from a position of denial that the sub $1,000 market was anything more than a passing phenomena to a turn about in marketing and development philosophy that refocused a commitment of huge resources away from the development and deployment of the new Merced uP architecture toward development of a much more aggressive PC & X86 server class uPs. Intel didn't lead the market in the direction it is going (sub $1,000 - sub $500 PCs) but it has certainly proven to be an old dog that is capable of learning new tricks.
My expectation for this quarter's earnings is that IDT will be in line with the revised estimates caused by the earnings warning. Tierney said that the the company felt comfortable with the amount of the write-off. Perhaps what will prove to be critical will be what the company says in the quarterly conference call about specifics of the WinChip 2 roll-out. Because built-up expectations have been deflated during past quarters, if the statements are vague or dubious about what to expect for volume production and speed grades, the analysts will have little choice but to discount any positive effect of the WC 2 for the immediate quarters and not have much faith in the build-up of momentum for outlying quarters. If, on the other hand, the company were to give some solid guidance on the scale of production and some good news on IDT's ability to produce higher speed grades, then the expectations for a quick turn around and a better chance of mounting each successive wave of uP development will be enhanced.
The downside risk is low at this point and the upside will be determined more by future prospects than current performance. IDT will either move up significantly or will just be stagnant until this summer, depending on how the outlook changes, IMO. |
