Thoughts on Las Vegas

Shlomi Cohen

CES is the world's biggest consumer electronics event, but small players like Ceva and DSP will be worth watching.

The dominant event on this week's agenda is the 2014 Consumer Electronics Show (CES) in Las Vegas. Some 150,000 visitors will attend the week-long show, the world's biggest, to size up the new electronics products that will be competing for the sales pie in this year.

As ever, notable by its absence will be the technology company with the largest market cap in the world, Apple (AAPL), which will approach sales of $200 billion this year. For Apple's great rival Samsung, Las Vegas has always been an important launch platform, and there are those who are certain that it will present the Galaxy S5 telephone. At the same time, on Tuesday, Samsung will release its operating profit figure for the December quarter, which, according to the Korean media, was below expectations, chiefly because of the tough competition from Apple.

Despite the festive season, there were investment bankers who were at work last week, and on the very first business day of the new year news broke of an interesting acquisition in Check Point Software Technologies Ltd.'s (Nasdaq: CHKP) sphere. One of its competitors, FireEye (FEYE), which specializes in monitoring network threats, and which had its IPO four years ago, announced that it was acquiring a privately held company. The company in question will contribute sales of around $150 million this year, and is being bought for $1 billion in shares and cash.

The interesting thing is that investors were not put off by the acquisition, which, at 6.6 times sales, looked expensive. Rather the reverse: they sent FireEye's share price soaring 39%, boosting its market cap by about $2 billion. My question is: Where's Check Point, with its $3.7 billion cash mountain and newly released trapped profits? Three months ago, Cisco (CSCO) bought another Check Point competitor, Sourcefire, for $2.7 billion, a sum that again represented 6.6 times sales.

Besides the very high returns, 2013 was also an excellent year for investors who dared to take part in secondary offerings by small technology companies, some of which had hardly any cash left. Attunity's (ATTU) offering gave a return of 50% by the end of the year. Ceragon (CRNT) produced a return of 29%, and Supercom 37% within two weeks of its offering, while an offering by a small US company I hold in my portfolio, QuickLogic (QUIK), gave a return of 53% within two months.

Almost all the semiconductor companies that sell to the consumer electronics companies will be at Las Vegas this week, headed by Intel (INTC). CEO Brian Krzanich, who took up his post four months ago, makes the opening speech tonight. Among the stocks I hold in my portfolio, besides Inetl itself, I will be following with special interest the announcement of the smaller companies, such as QuickLogic, Ceva Inc. (Nasdaq:CEVA); LSE:CVA) and DSP Group Inc. (Nasdaq: DSPG).

Investors in Ceva, and its management too, will listen closely to Intel's announcement in the course of CES on mobile, because if there is one customer with large potential for Ceva that has not been significant in the past few years, that customer is Intel. Several analysts believe that only Intel can pose serious competition for Qualcomm in cellular telephone processors, and its sole provider of DSP solutions is Ceva.

Among the processors that DSP Group will present at CES will be a new development, which in my humble opinion is the one with the most interesting potential: a processor for reducing background noise in smartphone conversations called HDClear. Apple has an in-house solution in collaboration with Cirrus Logic (CRUS), and Samsung buys a solution from Audience (ADNC). In field trials, DSP Group's solution beats Audience's, and so it stands a chance of selling it to Samsung, to which it currently sells products in other areas.

Countless applications will be presented at CES, to do with sport, health, shopping, driving, location, and so on, that use sensors embedded in handsets. The problem of problems for the smartphone makers is that most of the applications require a handset that is always on, 24 hours a day, even if the screen is dark. This means that the battery runs down quickly, and so only those who offer energy-saving solutions will do well.

In this niche, I expect a breakthrough for little QuickLogic, which has risen substantially in the past few weeks, apparently in advance of an announcement in Las Vegas. The processors it has developed for improving tablet and smartphone displays in daylight, while making a significant energy saving, are already in Samsung's successful tablet, and there are those who expect a win with its new smartphone as well.

QuickLogic's new and more interesting platform is connected to the new era discussed above of the use of sensors on smartphones. The company recently launched a new Sensor Hub, about which it will provide more information at CES. This is a processor designed for optimal management of information from sensors while making significant energy savings.

Published by Globes [online], Israel business news - - on January 6, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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