Flat is where it’s at
Monday, Apr. 23, 2001 13:54 PDT
By Jim Woods, AmericaInvest.com
Demand for semiconductor and related equipment has waned in recent months,
chiefly due to the slowing economy and its handmaiden, a downturn in IT spending.
One look at just about any semiconductor-related stock chart will tell you it hasn’t
been a very good year for stocks in the group.
But not every semiconductor firm has fallen on hard times. One small-cap chip issue
that has been bucking the group’s downtrend is Pixelworks, Inc. (PXLW).
Pixelworks provides integrated display processors for applications such as flat panel
displays and display projectors. “Flat panel displays are expected to be one of the
fastest growing markets over the next several years as they offer significant
advantages over conventional CRT [cathode-ray tube] monitors,” wrote SG Cowen
Securities analyst Mark Grossman in a note to his clients.
The company boasts an impressive roster of customers that includes some of the
world’s top PC monitor companies and television manufacturers, including Dell
Computer (DELL), Compaq (CPQ) and Sony (SNE).
On Tuesday, April 17, Pixelworks posted first-quarter revenue of $21.3 million, with
net income of $3 million, or 7 cents a share. In the same period last year, it had $7.1
million in revenue and a net loss of $600,000, or 8 cents a share. Consensus Street
estimates had pegged the company to earn only 4 cents a share in the quarter.
In a statement released along with
the better-than-expected earnings
results, the company said it
anticipates revenue for the second
quarter of about $22.5 million.
Provided nothing-material changes,
the company said it sees sequential
revenue growth of 11% to 13% for
the third and fourth quarters.
Pixelworks did say however, that
given the high level of economic uncertainty, accurately estimating revenue beyond
the second quarter would be very difficult.
Traders seemed to really like the numbers, as well as the tone of Pixelworks
statement, as the shares surged nearly 50% following the earnings release. “While
the vast majority of chipmakers have pre-announced and lowered guidance multiple
times during the past two quarters, Pixelworks is one of the few firms that not only
hasn't pre-announced but has actually exceeded expectations and reported double
digit growth in Q1,” wrote Grossman.
In addition to the robust demand for the company’s flat panel processors, Pixelworks
could have another big revenue generator looming on the horizon. Last week, the
company said it made a deal with Toshiba subsidiary ArTile to license its TX79
processor for use in the upcoming "Jolt" Internet appliance chip which integrates
Pixelworks' display controller technology with a web browser.
The TX79 is already being successfully used in the highly publicized Emotion Engine
product that is incorporated into Sony’s PlayStation 2 gaming console. If the Internet
appliances market begins to grow as some think it can, it could mean more good
earnings news for Pixelworks.
“Pixelworks dominates the IC market for multimedia projectors and high-end flat
panel displays, and with a variety of new products, we anticipate it will increasingly
penetrate the lower end of the flat panel display market,” wrote Grossman, who
recently reiterated his “Strong Buy” rating on the shares.
I know many people are still justifiably cautious about taking positions in anything
tech related, especially after the past 12 months of carnage in the semiconductor
group.
But when a company specializes in a unique segment of a high-demand market, it’s
definitely worthy of further consideration.
Euer Hans-Udo |
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