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From the National Post...
Saturday, September 4, 1999
Tundra rides rebound in microchip prices
Growing Asian demand: Chip maker's shares to hit
$21 in a year, analysts predict
By STEPHEN MILES
The Financial Post
A strong rebound in the price of computer chips and growing Asian
demand is driving the shares of Tundra Semiconductor Corp. higher.
One of a few pure semiconductor plays in Canada, the company has been a
solid performer in a relatively depressed sector.
A long period of oversupply in the chip market kept the lid on the share
prices of semiconductor firms through most of 1998. But after bottoming
last September the industry has been clawing its way back. The rebound
gained momentum in June and a recent rise in the price of chips has added
fuel to the fire.
The Philadelphia semiconductor index, a price-weighted benchmark of 16
major U.S. semiconductor firms, has been a big outperformer this year. It is
up more than 35% in the past three months, including a stellar 12% gain last
month alone.
Rebounding Asian economies are seen as key to rising chip demand and
better prices. Yesterday, the Japanese government reported stronger than
expected economic growth from April to June, with gross domestic product
creeping ahead by 0.2%, compared with economists' expectations of a 0.3%
contraction.
The spot unit price for 64-mega dynamic random access memory chips
rose to $12.15 (US) on Tuesday, from about $10 (US) last week, traders
said.
The growth trend and rising prices bodes well for semiconductor firms,
analysts say.
Semiconductors are
increasingly in demand for use
in computers, consumer
electronics and the auto industry.
Most of Tundra's business
comes from outside Canada,
with its products used in
manufacturing in the United
States, Japan and Britain.
The Kanata, Ont.-based
company was formed in 1995
when Newbridge Microsystems,
a division of Newbridge
Networks Corp., was spun off
into a separate publicly traded
entity at $9.25 a share in February.
Tundra designs, develops, markets and sells chips that perform specialized
bus-bridging functions in embedded computer systems commonly found in
products such as as routers and switches, Internet access, wireless
communications and robotic systems.
Technology partners include big names Motorola Inc., Texas Instruments
Inc. and Cadence Design Systems Inc. Its customer base is made up of
market leaders like Lucent Technologies Inc., Cisco Systems Inc.,
International Business Machines Corp., Newbridge and Nortel Networks
Corp.
Strong investor interest has seen the shares of semiconductor companies
advance strongly in recent weeks, with the recent climb in chip prices
promising even better times ahead, analysts say.
There have been upgrades across the board in the industry in recent weeks.
Texas Instruments was recently rated a near-term "buy" in new coverage
by Joseph Osha, an analyst at Merrill Lynch & Co. He has a 12-month
target price is $110 (US) on the shares. The shares (TXN/NYSE) closed
yesterday up 1/4 at $89 1/8 (US).
And market leader Motorola (MOT/NYSE) was raised to "buy" from
"outperform" by Timothy Luke, an analyst at Lehman Brothers Inc. The
12-month target price is $125 (US). The shares closed yesterday up $1 1/8
at $98 11/16 (US).
Tundra has benefited from the bullish outlook, with its shares (TUN/TSE)
climbing to a high of $18.25 on Aug. 26. They have settled a little since,
closing yesterday up 25c at $16.75.
Todd Coupland and Andrew Lee, analysts at CIBC World Markets, issued
a "strong buy" rating on Tundra stock last month.
"We expect that Tundra's management team will be able to execute and
deliver annual growth of 25% to 40%," the pair wrote in a research report.
Their 12-month target price on the stock is $21.
"Our target is supported by Tundra's proven, and what we believe to be
sustainable, growth rate in revenue and earnings per share, its market
leadership and the company's relatively attractive valuation in comparison to
a peer group of high-growth 'fabless' semiconductor companies," the
analysts said.
Tundra reported record revenue and earnings for its 2000 fiscal first
quarter ended Aug. 1, 1999.
In its 12th straight quarter of revenue growth, the firm had sales of
$8.6-million, up 44% from $6-million in the first quarter of 1999.
About 65% of revenue came from the telecommunications-data
communications sector, said Normand Paquette, Tundra's chief financial
officer. The firm expects this area of business to increase as a percentage of
total sales as the company focuses more on it.
Profit grew to $808,000 (6c a share) in first-quarter 2000, up from
$396,000 (4c) in the same period a year earlier. Earnings per share easily
beat analysts' expectations of 4c.
The consensus estimate of analysts, as polled by First Call Corp., is for
EPS of 23c in fiscal 2000.
Tundra's exposure to growing Asian demand is seen as a driver for revenue
and earnings growth, the company says.
The firm recently added focus to its Far East sales efforts with the
appointment of a new regional sales manager for the region. It also added a
distributor in Hong Kong that will help it reach into China.
"This is an exciting time for Tundra, especially since the revenue potential
we knew existed in Asia is now beginning to come to fruition," said Adam
Chowaniec, chief executive. "We are looking forward to what the future has
in store for Tundra in this region." |
