Interesting post from RB:
ragingbull.altavista.com
This stock is strong. Customer portfolio is rich - Cisco, Lucent, Ericsson, Nokia, Avici...With proprietary products, they are at their own on the markets they serve. Check this nice article:
stockhouse.com
Semiconductors: IDT Investors Cashing in on Chip Malaise
Miami, FL, August 15 /SHfn/ -- As its chipmaking peers wax and wane, Integrated Device Technology [IDTI] (IDT) is bucking the sideways trend of the broader sector. IDT has been retracing its steps with a vengeance, after a massive sector sell-off knocked the wind out of the company in late July. The reason is simple - IDT did not deserve to be punished by the frenetic blanket sell-off.
This high performance chipmaker is no longer a 98-lb weakling cowering in the shadow of Intel [INTC], the 800-lb gorilla of the PC microprocessor domain. Today, IDT is commanding attention for its proprietary communications integrated circuits (ICs) that supply networking firms such as Cisco [CSCO], Nokia [NOK], NEC [NIPNY], EMC Corp. [EMC], Motorola [MOT], Ericsson [ERICY], Nortel Networks [NT] and EchoStar [DISH]. And in the context of insatiable bandwidth needs, the exposure to the high growth communications and networking market has been received favorably by the investment community. However, IDTI analysts believe the story hasn't been fully appreciated. Analysts polled by StockHouse insist the proof is in the numbers. Accordingly, many have raised forward estimates in response to the blowout earnings reported on July 19th.
When exploring IDT's business, says Gruntal semiconductor analyst Vincent Benedetti, it's important to understand where their business actually takes place. "They really focus on a lot of the communications systems that assist traffic - the systems that are applied to base stations, wireless applications and networking." This is the sweet spot in memory relating to the communications market, says Benedetti.
IDT designs, builds and markets high performance semiconductors and systems which are used in data and telecommunications equipment such as routers, hubs, switches, and wireless base stations, and also in networked peripheral devices and servers. The company is able to address such a broad scope of applications because of technology initiatives in RISC microprocessors, high-speed SRAMs, logic devices, clock management technologies and communications memories such as FIFO (first-in/first-out) and dual-port memories.
This was not always the case. In its early days, IDT was producing industry standard ICs and was heavily leveraged in the PC memory business. A surplus of chips from Taiwan and Korean manufacturers and competitive pressure from Intel eventually busted the SRAM boom and the company reorganized and sold off its Pentium clone subsidiary. Under a new management team a remarkable turnaround ensued thanks to a transition into proprietary products. Today, the high-margin communications and high-speed logic business contribute an estimated 70% of the company's revenue.
"When you get up to this level of functionality in memory...there's not a lot of people directly threatening them in their space."
That's largely because IDT faces less competitive pricing pressure as a high-end supplier to the communications market, Benedetti asserts. He told StockHouse, "When you get up to this level of functionality in memory...there's not a lot of people directly threatening them in their space." He further explained that a lot (about half) of IDT's product line is proprietary. Therefore the company is able to lock in its forward contracts at a fixed price. Non-proprietary semiconductors are more susceptible to price fluctuations, thus the commodity type of chipmakers face additional risks.
Against a backdrop rife with debate that chipmakers are at the end of their cycle peak, IDT appears to defy the argument that ASPs (average selling prices) may be falling. IDT proponents argue that ASPs of many IDT products can be pushed higher still. Prudential analyst Randy Scherago wrote in his initiation of coverage, last January, "The surging global communications market's need for accelerating bandwidth and speed is increasing demand for embedded processors, communication memories (FIFO/multi-ports) and specialty SRAMs with the consequence of driving prices upward for the first time in years."
Increased capacity at its two domestic fab facilities will further improve the top line. Benedetti expects capacity and cost savings improvements as IDT further scales its manufacturing process to 0.18 -micron systems. "They have tight operating practices and they have very efficient manufacturing," said the Gruntal analyst. This is contributing to an incredible revenue growth rate and impressive gross margin improvements. Gross margins have improved for eight straight quarters, reaching a record high of 57.7% in the quarter ended June 30th, 2000. Prudential Securities stated that IDT's management has implied that gross margins will grow steadily to 62% to 63% by the fiscal year-end in March 2001.
Perhaps most significantly, the company has commanded Wall Street's respect for boosting year-over-year revenue growth projections for FY 2001 from 35% to 50%. The upward revision is indicative of management's confidence that impressive first quarter results can be maintained for the remainder of the fiscal year. On July 19th IDT reported $231.3 million in first quarter 2001 revenues, marking a 50% improvement over the comparable period last year and a 17% leap over the March-ended quarter. On $62.4 million net income, the fiscal first-quarter earnings per share of $0.58 a share easily breezed past the Street's expectations by 11 cents for a 23% upside surprise. The earnings were a 480% improvement over the same quarter last year, and 40% better than the prior quarter.
After the surprisingly robust first quarter, the Street is now looking for 2001 sales figures to top $1 billion. Prudential Securities raised the fiscal 2001 revenue estimates to $1.1 billion from $980 million, and boosted FY 2001 earnings per share projections to $2.95 from $2.15. Fiscal year 2002 revenue expectations were boosted by $300 million to $1.5 billion. The brokerage recommends the stock for high-risk investors with a "strong buy" rating and a $100 12-month price target based on a 29 times calendar year 2001 earnings. Gruntal places an intermediate price target of $95 on the stock and looks for shares to reach $110 in the long-term. IDT closed at $65 7/16 on Friday.
That's still a far cry from the 52-week high of $77 7/16 achieved on July 20th on the heels of the blockbuster financial results. Shares plummeted as low as $49 7/8 five days later, commensurate with the massive sell-off in the semiconductor and wireless infrastructure stocks. The stocks fell on worries that the projections for growth in the wireless communications, particularly in the cellular handsets market had been set too high. Shares of IDT have staged a smart recovery from that trifling level, and seem to have found footing in the mid-sixties range. The SOX, however, has not enjoyed a prompt rebound. The Philadelphia semiconductor index is off 25% from its July high, and has been bound in a sideways trading range marked by several headfakes in either direction. That's largely because the handset issue is an emotionally charged one, said Benedetti. He explained that although IDT does participate in the handset market, their exposure is mitigated because the company targets communications infrastructure, which is not as volatile as the handset memory market.
As is often the case with emotional sell-offs, the July drubbing of IDT shares created a terrific opportunity for investors. The shares have gained more than 30% over the past 11 sessions. The momentum action is likely to meet with some profit taking this week. Still, fundamentals point to a favorable outlook as the experts look for more upside from here. |
