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 |