CORPORATE FOCUS—Broad Product Line Shields Chip Maker from Tech Ills

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Summary


Business:

Design & manufacture semiconductors


Headquarters:

El Segundo


CEO:

Alexander Lidow


Market Cap:

$3.5 billion Dividend Yield: N/A*


Total Liabilities:

$150.1 million P/E Ratio: 21.7


Long-Term Debt:

$4.6 million

* International Rectifier does not pay dividends.

Even as other U.S. semiconductor companies continue to falter as the demand for personal computers slows, International Rectifier Corp.’s diversification into broader applications has helped push its stock price up nearly 100 percent in the past six months.

Buoyed by the success of its so-called “power chips” which manage the flow of electricity in thousands of products, from antilock breaks to fluorescent lighting a downward revision of fiscal 2001 revenues still puts the company 20 to 25 percent ahead of last year.

The company’s future is expected to include a slight downturn in revenues in the fiscal fourth quarter ending June 30, and a weaker demand for several of the company’s products, according to company officials and analysts.

“We are confident we will see growth return in the second half of the (calendar) year,” said Robert Grant, executive vice president of marketing at International Rectifier. “That growth will be fueled by several new projects that will begin production later this year.”

Despite the projections of a mild slowdown, shares of the El Segundo-based designer and manufacturer of power semiconductors remain at a relatively elevated level. As of last week, the stock was trading at around $55 per share, near its 52-week high of $67.48 and far ahead of the 52-week low of $27.37 it hit on Dec. 21. Analysts now have a 12-month target price of $75 on the stock.

Kent Mortensen, an analyst with Robert W. Baird & Co. in Milwaukee, attributed the bullishness to better-than-expected sales growth and a renewed focus on automotive and conservation technologies.

“In a difficult economic environment, International Rectifier demonstrated impressive sales growth of 40 percent vs. last year,” said Mortensen. “International Rectifier is also uniquely positioned to benefit from increasing power content required by next-generation processors.”

Also raising eyebrows on Wall Street are the company’s recent innovations in florescent lighting. International Rectifier makes chips that go into the base of compact fluorescent bulbs, which screw into traditional light fixtures. Compact fluorescent lamps, known as CFLs, produce the same light output as an incandescent bulb, while consuming only one-fifth of the power and lasting as much as 10 times longer. The bulbs have become quite popular because they don’t require overhead florescent fixtures, but are designed to fit into everyday table, desk and floor lamps.

“These fluorescent bulbs will help support a dramatic savings in energy consumption,” said Grant. “The lower we can go on the price, the more likely we can increase sales and energy conservation.”

Contributing to consumer demand for the bulbs is International Rectifier’s new chip design, enabling it to mass-produce the components. That, in turn, has lowered the retail price of the bulbs by about 25 percent.

The lower prices are translating to increased sales, and a bolstered bottom line.

International Rectifier reported net income of $47.9 million (73 cents per diluted share) for the third quarter ended March 31, up from $21.7 million (38 cents a share) in the like year-earlier quarter.

Third-quarter revenues were $276 million, way up from $198 million in the third quarter of 2000.

But there are some clouds ahead.

The company said it is revising its outlook due to weakness in the personal computer, server and communications markets, which account for about 40 percent of its overall revenues. The company anticipates fiscal fourth-quarter revenues to be 7 to 14 percent below the third-quarter level.

Company spokesman Grant added that fiscal 2002 revenues are projected to grow by 20 to 25 percent, down from the company’s previous target of 25 to 30 percent, but in line with this year’s projected revenue growth rate.

The downward revision for 2002 is due to weakened sales in its communications and broadband division.

But analysts seem basically unfazed by the revision.

“Our fiscal 2002 revenue assumptions were already at the low end of this range, and we view this guidance change as inconsequential given the industry backdrop,” said Mortensen.

The company’s financial results for the fourth quarter ending June 30 are expected to be released in July. The consensus of analysts surveyed by First Call/Thomson Financial is for International Rectifier to earn 54 cents a share in the fourth quarter, up from 52 cents in the like period last year.

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