Intel, which has generally manufactured the chips it develops, announced today that it will let Taiwan Semiconductor Manufacturing Corp. (TSM) manufacture system-on-chips using Intel's Atom technology.
Two fabless semiconductor companies that I own in my portfolio tracked by "Globes" are also customers of Taiwan Semiconductor, and both will report results this week. Sigma Designs (Nasdaq: SIGM) reports tomorrow, and Marvell Technology Group (Nasdaq: MRVL) on Thursday.
Sigma's share has risen 44% in 2009 - through the end of last week- implying that it has stabilized after a long and extended drop, from the end of 2007 when its share reached a high of $70, to a low of around $7 this past November.
Sigma primarily sells video processors to digital video adapter makers such as Cisco (Nasdaq: CSCO) and Motorola (Nasdaq: MOT), for the IPTV services of large telephone companies. It's generally known that large projects, mainly in the US, France, Germany, Japan, and Korea, are continuing despite the global recession, even if the investments by the companies are somewhat smaller than what the industry was used to about three years ago.
It turns out that at some companies, those large outlays were in building up adapter inventories, as part of a planned battle by telephone companies against cable firms, before the recession, and not because of a surge of customers. Today, despite the recession, research firms believe that the IPTV field will grow at an average annual pace of 15% in the coming years. In the meantime, Sigma is the only player with processors that fit software by Microsoft, the leader in the field. Market expectations are for Sigma to report $44 million revenue, and earnings per share of $0.18 in its quarter that ended January 31.
Sigma trades today at a market cap of $340 million, its annual revenue runs around $180 million, its full year profit is over $20 million, and it has around $200 million in net cash.
In the past year, short interest in the stock reached 40% of its outstanding shares. Though it has fallen to about half that level, it remains high, with 6 million shares sold short as of the end of February, a level ten times its daily average of shares sold.
Assuming the company meets expectations for the quarter, the share will respond primarily to the guidance provided for its next quarter, which ends in April, and for which analysts expect a small drop in revenue.
In contrast to Sigma, which has not publicly addressed its business since its last quarterly financial report, Marvell already warned at the end of January about the current quarter results, so investors will respond to its guidance for next quarter. Recently, both Goldman Sachs and Barclays upgraded their recommendations to "Buy". Among other reasons, they expect an improvement in the bottom line, resulting from more cost cutting.
Goldman Sachs writes that it pays for investors to buy the shares before results are released, because in their estimation, on Thursday the company will announce a major reorganization, which will include layoffs of about 10%. Marvell has two large development centers in Israel, in Yokne'am and Petah Tikva, and apparently the anticipated layoffs include staff in Israel. The cuts may not be significant because the product lines that Goldman sees being reduced or eliminated are mostly found in the US.
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2009
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