You have to look at it this way.
I have been accumulating this stock recently again after a long while after analyzing the situation, listening to the conference call, and other factors.
1) The news today about Intel and Analog Devices collaborating on DSPs for handsets leaves very few independent DSP plays out there. It is a powerful endorsement for DSP. Texas Instruments is going to go it alone to build their dominance. Their strategy is to sell their chips....not license their intellectual property. LU designs most of their chips for internal use as does MOT. These are the leaders in DSP...there is no question. (One of my favorite stocks is Analog Devices...though I have questions whether or not they will announce good earnings, this new deal with Intel will cushion the blow.)
It is clear that DSP functionality is of tremendous value or importance to semiconductor companies today. Look at the endorsment of top semis....Lucent, Texas Instruments, Intel, IBM, Motorola....all of these companies have some type of DSP expertise. There are dozens of semis out there that do not have DSP technology and it's clear that if they are to remain in the game for handheld devices, they need to obtain DSP know-how some-how. DSPs are found or will be found in practically everything. Modems, computers, digital cameras, DVD, cellular telephones are just some of the apps.
My prediction is that second tier DSP companies like DSP Group, Siemens, and Philips will see tremendous interest in their DSP cores....especially after this announcement by Intel and ADI. I would expect to see far more licensing deals, especially for the PALM cores which we have not seen so far.
2) DSPG, after this $34.5 million investment by Magnum, will have $8.5 per share in cash....meaning that the company's technology is valued at only $6 today. I am willing to bet that the products/cash flow/technology in this company is worth at least $15. That should put DSPG's stock price closer to $25.
3) System on a chip (SOC) designs will grow at an exponential rate. Many will require integration of DSP cores. National Semiconductor and its computer on a chip/smart appliances chips to be launched this year, Samsung, VLSI, LSI Logic (for now), OKI...all DSPG licensees.
4) Rebound in the semi market. yes, DSPG is undergoing a painful transition at this time but market demand should increase and all semis will benefit.
5) DSPG is in a mature but profitable market currently. The news about a push into home wireless solutions sound promising and could provide them with a strong growth vehicle. Some clues given away during the conference call makes it sound like they plan to push their designs into cordless phones....perhaps wireless home networking?....if the latter....this is one of the hottest areas of development right now....there are many different solutions...soem utilizing home electrical wiring, some using telephone wiring, some wireless.
6) Based on what they were saying in the conference call, DSPG looks like they are on the prowl for a possible acquisition. They said they did not expect to buy back additional shares but may use the money for acquisitions. If they choose wisely, this may be a great thing.
7) The increase in royalty and licensing revenues and in royalty paying licensees from 2 to 4 in the past quarter is exactly why I bought this stock in the first place and we are finally seeing the fruits of DSPG's labor in this area. That was almost $5 million pre-tax profit, up from $3 million the year before. But if you look at the distribution, most of this year's proceeds came from ROYALTY revenue from shipped products. NOT one time licensing payments. This is a great.
Yes we have some problems right now. Q1 will be unremarkable...not as bad though as this past Q4 they said. But Q1 is 1/3 over.
Best of luck everybody,
Tom
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