Semiconductor Firms Boosted By Success of Wireless Devices
CORPORATE FOCUS
By MICHAEL THURESSON, Staff Reporter
Despite a slow economy and sagging demand from big customers, semiconductor industry stocks have turned in one of the best market performances thus far this year.
The Philadelphia Semiconductor Index, which tracks the largest chip companies, is up 18 percent year to date, while the S & P; 500 Index is up only 5 percent.
Locally, four of the five semiconductor companies surveyed showed stock price gains this year, feeling the glow of some of the industry’s strongest trends. International Rectifier Corp., the El Segundo-based manufacturer of power management semiconductors, has seen its stock gain 20.5 percent for the year, while Diodes Inc. is up 60.8 percent and Semtech Corp., based in Camarillo, is up 45.8 percent.
All three have benefited from strong consumer interest in cell phones and new notebook computers and other devices with wireless capabilities, and requiring sophisticated power management.
Other factors at play are active manufacturing in China and the belief that pent-up demand for technology products will surface as the economy gradually improves. These hopes so far have overcome concerns about everything from the Iraq war to SARS.
Currently, there is slow, single-digit revenue growth for the industry, which is expected to rise to between 10 and 15 percent for all of 2003, said Brian Matas, vice president of research at IC Insights, a market research firm.
“In terms of dollars the semiconductor industry has turned the corner and has shown growth,” he said.
Mobile leadership
Computer chipmaker Intel Corp. spearheaded much of the turnaround with its March launch of a new line of chips for wireless devices, called Centrino. The chips are expected to fuel sales of personal computers and notebook computers with wireless access to the Internet in turn, leading to sales of component chips that are made by some of L.A.’s handful of computer companies.
As of May 21, Intel’s stock was up nearly 21 percent for the year, to a close of $18.84 a share. The performance has trickled down to some local semiconductor companies.
International Rectifier, which makes power management semiconductors, exceeded market estimates with earnings of $7.5 million, or 12 cents a diluted share, for the third quarter ended March 31, compared with $12.2 million (19 cents) for the like period a year ago.
Information technology sector shipments rose by 21 percent from the previous quarter, driven by orders to supply power management chips for products based on Centrino and Intel’s Pentium M chips.
“Anytime you are attached to Intel you are going to benefit in a big way,” Matas said.
In defense, orders rose by 49 percent. Morgan Stanley recently raised its revenue forecasts, citing “solid bookings momentum the company is currently experiencing, as well as their overall strength in new design wins” in its April 24 report.
Westlake Village-based Diodes saw its stock hit a 52-week high of $17.85 on May 15 after announcing earnings of $1.9 million, or 21 cents a diluted share, for the first quarter ended March 30, compared with $208,000 (3 cents) for the like year-earlier period. The company also makes semiconductors for power management, and it has ridden demand from China-based manufacturers of portable consumer electronics products.
Diodes’ Asian business grew to roughly half of total sales, up from 30 percent in 2002, according to a report by analyst Gary Mobley at B. Riley and Co., a Los Angeles-based equity research firm. This has helped insulate the company from poor pricing and demand in the U.S. market. “Manufacturing is shifting to Asia and we recognized it early,” said Mark King, vice president of sales and marketing at Diodes.
SARS factor
One of the biggest questions for Diodes is the impact of the SARS epidemic, Mobley said in his report. He also noted that pricing pressure placed on component suppliers by computer manufacturers could also threaten Diodes.
Other local semiconductor stocks have showed gains. Semtech closed at $15.95 on May 21, up 45.8 percent for the year. The company posted flat revenues and earnings of $34.2 million, or 44 cents a diluted share for the year ended Jan. 26, versus $26 million (34 cents) for the prior year.
In the company’s 10K filing with the Securities and Exchange Commission, Semtech cited strong sales to China-based manufacturers of mobile devices for its power management semiconductors.
Van Nuys-based Trio-Tech International, which primarily sells semiconductor testing equipment to manufacturers in Southeast Asia, closed its third quarter ended March 31 with earnings of $28,000, or 1 cent a share, its third consecutive quarter in the black after showing significant loses early in 2002. For the like year-ago period, the company lost $312,000 (12 cents). The company’s stock is up less than 1 percent for the year to $2.25 on May 21.
For the first quarter ended March 31, Taitron Components Inc., a Valencia-based distributor of semiconductors, saw its revenue decrease 15 percent to $3.2 million. Net income was negligible, versus a loss of $193,000 (3 cents a share) for the year-ago period.
The company’s stock is down 14.2 percent for the year, to $1.15. Taitron, which supplies a variety of components to manufacturers and other electronics distributors, has been able to turn its third straight quarterly profit by aggressively cutting costs and reducing inventory despite an industrywide slowdown, according to a company filing with the SEC.
