*AV*--I am bought at $11.50 to start and took my second position at $9.75 a few minutes ago. I am angry with myself for not waiting a tad bit longer before testing the water. At this point (all confirmations have cleared) I guess I am close to 66% of the shares I want to own with an average price of $10.25 so far. I am tempted to fill the position on any weakness that might lower the average cost to $10 since a recovery to the IPO price ($14) would net a 40% return before year end or at least 1st QTR 1999. Remember, they will be hot and heavy in the game market for the Christmas season along with its other embedded chip business that might be growing.
Andrew
BTW-for the people interested in IDTI, the following story might be of interest.
07/06 6;33W (DJ) =SMARTMONEY ONLINE: All The Wrong Moves?
By Tiernan Ray
SmartMoney Interactive
NEW YORK (Dow Jones) --Perhaps the only thing worse than being wrong is being
right but then changing your mind. For proof of that, consider the case of
Integrated Device Technology Inc. (IDTI) a small semiconductor company whose
principal business was the manufacture of an advanced type of memory chip that
happens to be one of the only bright spots in the otherwise beleaguered
semiconductor industry.
The trouble is, last year IDT decided pretty much to stop making the chips,
known as SRAMs, referring to static random access memory, in favor of a new,
riskier strategy: competing with Intel Corp (INTC) - IDT now makes a family of
Pentium TI-compatible microprocessors called WinChips. CEO Len Pernham is
betting his company can deliver a cheaper version of Intel's chips at the low
end of the performance grade, for computers selling at under $1,000, and save
computer original equipment manufacturers a few dollars on each box.
So far, Wall Street has not been impressed. Investors punished IDT for its
move out of SRAMs, pushing the company's stock down as low as 6 9/16 off its
high of 16 1/2 last February. IDT hasn't helped matters any. It has missed
analysts' earnings estimates for the past two quarters and in June, the
company pre-announced a pretax loss of about $15 million this quarter, or
roughly 14 cents a share, thanks to declining profits in its SRAM business,
which historically represents more than a third of IDT's revenue.
In fact, the cyclical nature of the memory business was precisely the reason
IDT decided to shift its focus in the first place. The question now is, is
this a dollar stock, or is IDTI now the best beaten-down chip company to buy in
a time of depressed semiconductor fortunes? The answer hinges on whether IDT
can successfully take on not only Intel but Advanced Micro Devices Inc. (AMD)
and National Semiconductor Corp.'s (NSM) Cyrix division in the fiercely
competitive market for low-end microprocessors powering the next generation of
sub-$l,0O0 PCs. "When they originally came in here and said they were going to
underprice AMD and Intel, I was skeptical," says Wathan Brookwood, an analyst
with Dataquest in San Jose.
"But they've achieved an incredibly low cost, maybe $45 a piece. If somebody
says, 'I can save you $25 on that box, that's a big deal." That said, early
versions of the WinChip haven't exactly taken the sub-$l,000 PC market by
storm. These chips, running at 180 and 200 megahertz, are apparently not fast
enough for most computer manufacturers turning out sub-$l,000 computers.
However, IDTI has two faster chips in development, and the man in charge of
the project is a respected chip veteran, Glenn Henry, a 2l-year IBM employee
and a former chief technology officer with Dell Computer Corp. (DELL)
By the year's end, IDT should have chips running at speeds of up to 300 Mhz,
which would meet the demand for really low-end versions of Intel-compatible
PCs. providing IDT can execute crisply in the next six months, its road map is
the right one, say analysts.
"They've got nice products," says MicroDesign Resources founder Michael
Slater. "They are not trying to beat against Intel; they are going to the part
of the market where Intel is weakest, and they've built their entire product
line around that." Slater says that although IDTI will have to go up against
National Semiconductor's integrated chips, the so-called system-on-a-chip, the
two companies will really be targeting different markets - and IDT's approach
may be less risky. Whereas IDTI's microprocessors are basically cheaper
versions of Pentium II parts, National is attempting to integrate multiple
functions on a single semiconductor for a kind of embedded PC, targeted at
low-cost information appliances.
National is banking on a new market growing beyond the unit volume of the
PC market," says Slater "That's a much dicier proposition than saying, 'We
can get 5% or 10% of the PC market focused on low price points where we can
deliver good value,"' in the case of IDTI's strategy.
Getting the technology right is only part of the challenge IDT faces. The
company must beef up its marketing budget to out-talk AMD and National
Semiconductor. That will be difficult, because AMD and National both have
larger arsenals for both marketing and R&D. AMD has already won accounts with
Hewlett-Packard Co (HWP), Compaq Computer Corp. (CPQ) and International
Business Machines Corp. (IBM) for its K6 chip.
IDT's sluggishness in marketing the WinChip is one factor analysts cite as
the reason for the company's disappointing start this year.
And it looks like IDT will have some new competition: A startup called Rise
Technology, based in Santa Clara, Calif., is hard at work on Pentium
II-compatible chips specifically targeted for low-cost, low-power,
high-performance systems.
Still, IDT has had more time in the market than any startup, and it may well
be able to steal some share without greatly upsetting either Intel or AMD
Dataquest's Brookwood says the market for processors for sub-$l,000 desktop
computers was $160 million last year and will be $1.2 billion in 2002. While
Intel's cheaper chips, such as its Celeron, will probably increase its share
to 52% of the market in that time, that will leave plenty of room for AND,
National and IDT to compete comfortably, he says.
In fact, IDT needs only a few percentage points of the market to reach
breakeven on its semiconductor fabrication plants, say analysts. "Even a few
hundred thousand units in the course of a year would make all the difference
in the world," says James Barlage, an analyst at Salomon Brothers Smith
Barney.
If IDT's foray into low-priced microprocessors doesn't take off as quickly
as the company hopes, all is not lost. IDT's Clear Logic subsidiary offers
parts that can substitute for chips made by programmable logic vendor Altera.
The idea is that Clear Logic's chips would be cheaper for equipment makers
that use Altera's components, such as networking vendor Cisco Systems Inc
(CSCO). Lehman Brothers analyst Michael Gumport says IDT can produce chips
that will slip right into place in the high end of Altera's product line,
producing a nice niche business. "It's a 60% gross margin business, with 25%
to 30% long-term growth. The market could be worth about $10 million (for IDTI)
this year, though it's barely anything now."
Even at its current price, IDT is a speculative investment and one we
wouldn't recommend anyone rush out and buy. If you believe the sub-$l,000 PC
market is ready to take off, and that IDT can make good on its plan to produce
cheap, fast, Pentium II-compatible chips, then this company may be worth a
second look.
There are three things you should watch for in the stock in the next three
months. First, the company must deliver on its next generation WinChips, at
speeds of 233 Mhz or greater, by ramping up volume production in the September
time frame. Then Took for production of faster parts, in the 500 Mhz range, by
end of year. Any failure to meet that target would be a bad sign for the
company's ability to deliver on its stated vision.
Second, watch out for new customer wins. If IDT can bump up sales of WinChip
processors above, say, 100,000 units in the next two quarters, it could mean a
boost in overall sales for the product for the year.
Finally, IDT must hold onto its core businesses. Look for modest
double-digit percentage growth in sales of communications products and static
sales of the company's remaining SRAM chips. The closet the company can come
to making $150 million or so in revenue per quarter, the better its chances of
profitability. Conversely, any decline in these two areas, say analysts. would
signal a weakening of fundamentals that could make that much harder for IDT to
sustain the battle against Intel.
|
