NYT article about Audiovox, a cell phone handset manufacturer.
(It is interesting to me that (in this article) the totally WRONG impression is given that Qualcomm is still in the handset business. You would think that seven or eight months would be long enough for people to have heard the news ...)
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July 16, 2000
A Cell-Phone Company at Old-Economy Prices
By MICHELLE LEDER
What should investors make of
Audiovox, the mobile telephone
handset provider that has been
called the poor man's Qualcomm? Though
Audiovox, based in Hauppauge, N.Y., has
been reporting stellar sales growth and has
surpassed earnings expectations for three
quarters, the stock, having soared through
March, is now down 32 percent this year,
compared with a 10.7 percent climb in the
Standard & Poor's Communications
Equipment index.
The reasons include strong competition,
falling profit margins and the company's
dependence on a single customer for the
bulk of its sales.
Stacked next to Qualcomm, a much-better-known maker of cellular
telephones (as well as chip sets) that became a Wall Street darling, Audiovox
remains inexpensive, now trading at $31.375, about 17 times its estimated
2001 earnings of $1.89 a share. Qualcomm, meanwhile, is trading at 46 times
2001 estimates of $1.37 a share, even after falling by about two-thirds this
year.
But the two control similar pieces of the $48.4 billion North American market
for handsets. In 1999, Audiovox had 10 percent, while Qualcomm had 11.2
percent, according to Dataquest, a market tracker.
As a result, some investors saw Audiovox as a bargain. "It was a cheap way
to play Qualcomm," said Jayne Stevlingson, a portfolio manager for the
Oppenheimer Discovery fund. But she is now having doubts, and has sold
50,000 of her 300,000 Audiovox shares.
Alan Alpers, a senior portfolio manager at Navellier Fund Management, has
also pulled back, citing the stock's difficulty in breaking past the high $20s.
"Fundamentally, everything looks good, so it's kind of a mystery," he said.
Before last year, Audiovox stock struggled to break $10, as the company was
still best known for its decidedly unsexy car audio equipment. Car electronics
now makes up only 20 percent of the business, with handsets accounting for
the rest. By March 7 of this year, less than a month after it sold 3.1 million
shares at $45 each in a secondary offering, the stock had reached a record of
$72.50. Then, amid the selloff in technology stocks, Audiovox fell further
and faster than most.
The company's strongest defender is John J. Shalam, 67, the entrepreneur
who turned his $15,000 investment 35 years ago into a company that
reported $1.16 billion in sales last year, an 89 percent increase over 1998.
"We don't think the ride was justified to $72 because that's not realistic,"
Shalam, the chief executive, said recently, just after trying to shore up his
support at a meeting for analysts and investors in Manhattan. "But we believe
that it deserves to trade at $40 to $50."
The five analysts who follow the stock, including four whose firms were
involved in the secondary offering, recently raised their earnings expectations
for Audiovox. All but one have strong buys on the stock. "Compared with its
competitors who are trading at 47 times 2001 earnings, this company is
clearly undervalued," said Michael Sheldon, chief market strategist for
Spencer Clarke, an investment boutique in Manhattan that did not help
underwrite the stock.
The analysts' consensus is that Audiovox will earn $1.64 a share for the
current fiscal year, which ends on Nov. 30, and $1.89 a share in 2001. But
last month, the analysts lowered their 52-week price targets to $40 to $50 a
share from as high as $70.
Sheldon, among others, says he remains concerned about the company's
falling margins. In 1998, Audiovox had gross margins, or profits before
interest and taxes, of 14.4 percent. Last year, they fell to 11.6 percent; most
analysts expect them to go below 10 percent this year as competitors cut
prices.
Another concern is that up to 80 percent of Audiovox's handset sales are to
one customer, Verizon Communications, the combined Bell Atlantic-GTE
cellular service provider. Shalam said that having so many orders in hand
from Verizon helped the company avoid having excess inventory. But
Stevlingson worries that "when you have one customer that controls 80
percent of your revenue, they're basically telling you what to price it at."
Copyright 2000 The New York Times Company |
