From Briefing.com: Tech shares closed the last session of the year on a mix note, reflecting investors' uncertainty of what lies ahead in 2004, and profit taking in large cap tech even as investors seek out higher growth / better value in smaller tech. Large cap tech sold off for most of the day but managed to narrow losses in the final hour of trading. At the bell, the Philadelphia Semiconductor Index (SOXX 508.12 -1.69) closed 0.33% lower while the Briefing.com Tech Index (BTI) closed 0.5% higher and the Nasdaq Composite (IXIC 2003.37 -6.51) eased 0.32% lower. Among SOXX companies, decliners outnumbered advancers 1.8:1, with decliners sliding 0.9% and advancers edging up 0.5%. This compares against BTI companies, where advancers posted outsized gains of 3.1% vs. a 2.0% drop by decliners, offsetting the impact of decliners outnumbering advancers 1.2:1. For the year, the SOXX rose 75.7% while the Nasdaq Composite gained 50%.
As with Tuesday's troika of economic data, Wednesday's economic data, though mildly encouraging, did not inspire buyers to step into the market en masse. While Initial Unemployment Claims fell 15K to 339K, continuing claims edged up 19K to 3.315MM.
A popular view among talking heads is that returns in 2004 can not possibly be as good as 2003. While this may prove to be the case for the averages, portfolios are made of individual stocks and it is of little service to speak of averages unless one is simply buying the averages. At Briefing.com, we make every effort to bring you attractive, actionable investment ideas on a daily basis. As an example, we wrote in our review of Intervoice's (INTV 11.87 +1.51) Q3 results on Story Stocks (Dec 19, 2003), that investors would be well rewarded because INTV is positioned to garner strong demand for its solutions and generate growth above the high teens rate implied by our model given that: 1) INTV commands one of the best positions at the intersection where voice, data, fixed-line and wireless applications meet and will enjoy growing demand for it's IVR solutions; and 2) management has made excellent progress holding costs down, suggesting opportunities for substantial margins improvement as sales ramp. Shares closed up 14% today and 21.7% since our review. We would initiate/add to position. Note that on Wednesday's Story Stocks page, we highlighted Power Integration (POWI 33.46 -0.29) as a play on the market for high voltage power conversion solutions and global energy conservation.
We will redouble our effort to bring you attractive, actionable investment ideas on a daily basis throughout the new year. Please visit the Story Stocks and Daily Sector Wrap pages for the latest thinking on investment opportunities across market sectors, and the Page One, Looking Ahead and Economic Briefing pages. For broad market perspective and outlook. For active investors and traders, visit the Inplay, Swing Trader, and The Techical Take pages (available to Platinum clients) for actionable ideas.
May the year ahead be as you wish.--Ping Yu, Briefing.com
Group % Change Avg % Change Advancers Avg % Change Decliners Ratio Advancers to Decliners *P/SG Ratio: Advancers *P/SG Ratio: Decliners
Philadelphia Semiconductor Index -0.3% 0.4% -0.9% 0.5:1 4.1 4.5
Briefing.com Tech Index(based on a composite of over 1000 tech companies) +0.3% 3.1% -2.0% 0.8:1 1.6 1.7
Audio & Video Equipment +0.2% 1.0% -1.4% 0.9:1 0.3 0.5
Communications Equipment +1.1% 4.6% -2.1% 1.0:1 1.8 1.8
Communications Services +0.5% 2.3% -2.1% 1.4:1 1.1 1.0
Computer Services +0.2% 3.1% -2.3% 0.9:1 1.8 1.8
Computer Sys & Peripherals +0.1% 2.6% -1.9% 0.8:1 1.3 1.6
Electronic Instruments & Controls -0.2% 2.9% -2.3% 0.7:1 1.5 1.1
Scientific & Technical Instruments +0.0% 1.9% -1.5% 0.9:1 1.2 1.3
Semiconductors +0.1% 2.8% -1.6% 0.6:1 2.4 2.8
Software & Programming +0.4% 3.7% -2.1% 0.8:1 1.5 1.9
*P/SG Ratio: (Price / Sales) / Sales Growth.
4:55PM Wednesday After Hours prices levels vs. 4 pm ET: With most traders having cleared out to get a head start on their New Year plans, the after hours trade has been eerily quiet. Very few companies have issued press releases, with the most interesting being Digital Angel's (DOC 4.68 -0.06) announcement of a 1.09 mln share offering, and GSI Lumonics's (GSLI 11.72 -0.05) news of a new trading plan for its CEO. Charles Winston adopted a limited stock trading plan structured in accordance with Rule 10B5-1 of the SEC, which involves the sale of 875,574 shares over three years.
Presently, the S&P futures, at 1111, are flat with fair value, and the Nasdaq 100 futures, at 1471, are also flat with fair value. Today's mixed session of trade was still good enough for a 25%, 26%, and 50% year gain for the Dow, S&P 500, and Nasdaq, respectively. The positive move was the first one for the market in four years, and Briefing.com expects another advance in 2004. Granted, we do not expect upside on the magnitude of 2003, but for reasons we laid out in our Tying It Together piece, we look for the indices to still register gains next year.
Tomorrow, the stock and bond market will be closed in observance of the New Year holiday. On Friday, the stock market will be open for a full session in what should be another quiet trade. There are no economic or earnings reports of note on tap.
Have a Safe and Happy New Year, and thank you again for all your support in what has been a great year! May 2004 bring all of us similar success! -- Heather Smith, Briefing.com
4:07PM GSI Lumonics CEO adopts trading plan (GSLI) 11.71 -0.06: Co announces today that Charles Winston, President and CEO, adopted, effective November 13, 2003, a limited 10B5-1 stock trading plan, which allows him to establish prearranged trading plans to govern the sale of a specified number or dollar amount of shares of company stock over a predetermined period of time. Mr. Winston's three-year plan involves the sale of 875,574 shares.
9:05AM Chipmos Technology announces loan for capacity expansion (IMOS) 8.89: Co announces that its 70% owned subsidiary, ChipMOS Taiwan, signed a 4-year term loan with 5 Taiwanese banks that provides a 2 bln credit line (in Taiwan dollars) to the co. The proceeds of the loan will be used by ChipMOS Taiwan to purchase equipment to provide more assembly and testing capacity to its customers.
8:04AM Ciena confirms GIG-BE contract (CIEN) 6.10: -- Update -- Co announces that it has been awarded a contract by Science Applications Int'l Corp to support the Defense Information Systems Agency Global Information Grid Bandwidth Expansion (GIG-BE) project; CIEN will supply its CoreStream optical transport and switching platform for deployment in DISA's GIG-BE optical IP terrestrial network. (See 7:08 comment for more details and commentary on the contract awards.)
7:27AM LEXR upgraded to Hold at WR Hambrecht 17.39: WR Hambrecht upgrades Lexar Media (LEXR) to Hold from Sell based on a benign flash card pricing environment in Q4, which should mitigate product gross margin pressure from increasing supply costs; however, firm remains cautious due to valuation as well as the prospect of decreasing royalty revs in Q2.
3:44PM Power Integration (POWI) 34.02 +0.27: POWI is a play on the market for high voltage power conversion solutions and global energy conservation. Large market opportunities but POWI shares are richly priced. We would initiate a minor position for aggressive portfolios.
Market Opportunity
Almost all electronic devices/appliances that plug into a wall socket, from cell phone chargers to laptops to digital set-top boxes to television sets, require a type of power supply to convert high-voltage AC (alternating current) electricity from utilities into the low-voltage DC (direct current) that is used by the devices. Over 5 billion electronic devices/appliances that require AC to DC power conversion solutions are manufactured each year, representing an enormous market for high-voltage ICs-based (integrated circuits) power conversion solutions.
Demand for compact, energy efficient and cost effective high-voltage ICs-based power conversion solutions is being driven by two forces: 1) advances in device/appliance technology and design; and 2) need for energy efficient appliances/devices.
First, traditional copper and iron transformers as well as high-voltage discrete semiconductor current switchers have not kept pace with advances in appliance/device technology and design, which have become increasingly complex and compact. Older power conversion solutions require a large number of components and consume more energy. As a result, designers are increasingly challenged in their ability to reduce device size and improve power efficiency.
Second, standby electricity consumption / leaking current is a growing global problem. Standby consumption and leakage is the energy expended by appliances when they are not performing their primary function or switched off. According to Rainer et al (1996), the average U.S. home consumes 53-115W of electricity with no appliances being used or 5-23% of residential consumption. Other studies show each device eats away $2 per year; with 125MM homes in the U.S. and an average of 20 devices per home, this amounts to $5B in energy waste. Standby consumption and leakage are likely to increase as new generations of portable consumer electronics enter the marketplace and electronic devices continue to proliferate around the globe. A number of national energy conservation initiatives around the world have been implemented to address this growing problem. As a result, manufacturers are required to design products that meet global energy efficiency guidelines, driving the conversion from older technologies to ICs-based solutions.
Table 1 lists the average standby consumption and loss for the top ten home appliances. Table 1. Standby Energy Consumption for Top Ten Appliances.Appliance Millions of Units Standby Power (W) Total Standby Loss (TWh/Year)
TV set 186 4.0 5.4
VCR 120 5.6 4.9
Compact Audio 53 10.6 4.7
Cable Box 58 11.6 3.7
Rack Audio 55 7.0 3.2
Microwave Oven 78 3.1 2.1
Battery Charger 98 2.4 2.1
Answering Machine 66 3.3 1.9
Clock Radio 105 2.0 1.8
Cordless Phone 61 2.8 1.5
Source: Alan Meier, Wolfgang Huber. Environmental Energy Technologies Division, Lawrence Berkeley National Laboratory
Company Overview
Power Integration (00C0 33.75) designs, develops, manufactures and markets proprietary, high-voltage, analog ICs for use in AC to DC, and DC to DC power supplies.
Competitive Position
Technology. 72 issued U.S. patents; 58 foreign patents. Highly integrated ICs-based switchers employ 70% fewer components, have enhanced functionality, such as thermal and short circuit protection, compared to discrete-based solutions and as a result are more cost-effective than copper and iron, and discrete switchers. Company continues to invest a high percentage of revenue in R&D.
Financial. Strong balance sheet. Approximately $130MM in cash. No long term debt. Quick ratio of 7:1. Current ratio 8.6:1.
Cost Competitiveness. For customers, Integrated solution simplifies power supply design, reduces time-to-market and product development risks and makes for more efficient high volume manufacturing. POWI is reducing manufacturing costs by transferring production offshore.
Customer Base. Relatively concentrated customer base with opportunity to expand across market segments. Two distributors account for approximately 44% of sales. One OEM customer accounts for approximately 11% os sales. Top ten customers account for approximately 77% of sales. Table 2 lists applications and customers by market segment. Table 2. Customers by Market Segment.Market Segment % of Revenue Applications Customers
Communications ~37% Cellular phones, cordless phones, cable modem, XDSL modems, network hubs, Telcom AC-DC, Telcom DC-DC AcBel, Anam, Leader, Mitsubishi, Motorola, Nokia, Phihong, Quante, Salom, Samsung
Consumer ~27% Cable and DBS set top box, digital camera, DVD, TV standby, home comfort, major appliances, personal care and small appliances. Braun, Daewoo, General Electric, LG, Maytag, Miele, Mitsubishi, Pace, Philips, Samsung, Shinco, Sony, Whirlpool
Computer ~23% Server standby, desktop standby, desktop main, notebook adapter, LCD monitors, multimedia audio, printer, removable media and LCD projector. AcBel, Artesyn, Astec, Compaq, Dell, Delta, Hipro, IBM, Intel, Liteon, Magnetek, Samsung
Industrial Electronics ~8% Industrial control, motor control, UPS (uninterruptible power supply) and utility meters. Actaris, American Power Conversion, Black & Decker, EBM Werke GmbH, Formosa Electronics, Samsung, Schlumberger, Siemens
Recent Performance
P&L Line Performance
Revenue Q3 (Sept) revenue increased 22.6% Y/Y to $34.525MM, driven by market share gains and strong demand for TOPSwitch and TinySwitch products from all three core segments.
Product revenue increased 22.6% Y/Y to $33.986MM, driven by a .
License revenue increased 18.2% Y/Y to $0.539MM (% of sales).
% breakdown by market category:
Communications revenue (~37% of sales) growth driven by demand from cell phone manufacturers.
Consumer revenue (~27% of sales) growth driven by a doubling of DVD revenue, a trippling of Set-top Box revenue and a 48% rise in Home Appliance revenue as manufacturers moved to meet new global energy efficiency guidelines.
Computer revenue (~23% of sales) growth driven by 68% Y/Y increase in LCD monitors revenue and a 51% Y/Y rise in PC standby revenue. PC standby revenue driven by decision of manufacturers to meet 1W standby energy efficiency requirement.
Industrial: ~8% of sales. Revenue grew 36% Y/Y.
Other: ~5% of sales.
Gross Margin Gross profit grew 37.7% Y/Y to $16.303MM.
Gross margin improved 520 bps Y/Y to 47.2%.
Operating Margin Operating income rose 121.3% Y/Y to $6.598MM.
Operating margin improved 830 bps Y/Y to 18.7% on manufacturing and operating efficiencies.
Sales and marketing expense increased 2.4% Y/Y; declined as a percent of sales by 220 bps Y/Y to 11.1%.
General and administrative expense increased 6.3% Y/Y; declined as a percent of sales by 80 bps Y/Y to 4.9%.
R&D increased 20.4% Y/Y; declined as a percent of sales by 20 bps Y/Y to 12.4%.
Valuation
On an inverted DCF/EVA basis, assuming firm balance sheet management and steady Y/Y improvement to:
25% operating margin by C05, POWI'ss valuation implies that the company must grow revenue in the high 30% range for the eight years beginning in C05 in order for investors to justify owning shares at current valuation.
30% operating margin by C05, POWI'ss valuation implies that the company must grow revenue by 35% per year for the eight years beginning in C05 in order for investors to justify owning shares at current valuation.
35% operating margin by C05, POWI'ss valuation implies that the company must grow revenue by 30% per year for the eight years beginning in C05 in order for investors to justify owning shares at current valuation.
Consensus Y/Y growth for C03 and C04 is 19.1% and 21.9% respectively. On a price multiples basis, POWI trades at 8.0x C03 revenue of $128.82MM (+19.1% Y/Y) and 6.6x C04 revenue of $157.00MM (+21.9% Y/Y); 58.7x C03 EPS of $0.58 and 43.1x C04 EPS of $0.79.
Summary
POWI is well positioned to capitalize on this emerging market for ICs-based power conversion solutions with the company's new LinkSwitch and DPA-Switch products even as the successful TOPSwitch and TinySwitch lines continue to gain design wins and market share. Investors are cognizant of the substantial market opportunity and POWI's strong competitive position. We note management has indicated the current addressable market is approximately $1.6B. At 35% annual revenue growth, POWI's annual revenue would exceed the current addressable market by the end of our ten year forecast period. That said, we think the addressable market opportunity is expanding as manufacturers convert from older technologies to ICs-based solutions, as manufacturers introduce new appliances/devices and as POWI rolls out new products, lending support to sustained growth beyond the 30% rate implied by our model. Shares are richly valued. We would initiate minor position at current level only for the aggressive growth portion of portfolios.
The recently intoduced LinkSwitch family and DPA-Switch family of ICs are just entering commercial production and opens new markets for POWI. The LinkSwitch family is designed to replace linear transformers in the 0-3 watt range for use in a large array of electronic products (1 billion units annual market opportunity); consumes 95% less energy than century-old copper and iron technology. The DPA-Switch family is designed for use in DC-DC converters and DPAs (distributed power architectures). Switcher products have long design-in phases and product life cycles. We expect sales of all four product families to continue to ramp for many quarters.--Ping Yu, Briefing.com
finance.yahoo.com
Thanks for the updated tables Don!
RtS |
