Friday, May 30, 1997

Spectrian Corp.
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Phone: 408-745-5465
http://www.spectrian.com
Price (5/30/97): $22

HOW DID IT DOUBLE?

Opportunity beeped but did investors listen? As Spectrian shares began the year at $7 3/4, few were likely to return the call of a fallen company that had traded above $50 a share just two years ago. However, a strong quarter and a slew of analyst upgrades now find the shares buzzing once again.

Sandwiched between an analyst upgrade from Oppenheimer in March and a UBS Securities upgrade in May came the April announcement of its fiscal fourth quarter results. While earnings were flat despite strong sales growth, the $0.18 a share showing was still $0.06 better than the consensus estimate.

Figure in a strong presentation at the Hambrecht & Quist 25th Annual Technology Conference on April 29, where the company was more than happy to boast about its niche dominance and innovative ways, and it might be easy to understand why the only thing racing higher than the share price is the revised analyst estimates.

BUSINESS DESCRIPTION

Spectrian makes linear power amplifiers for wireless communications equipment makers. The amps permit wireless companies to allow more calls on a single frequency. With global clients like Northern Telecom and Ericsson, the Sunnyvale-based company introduced 14 new products on 7 new platforms last year.

FINANCIAL FACTS

      Income Statement
12-month sales:    $88.3 million 
12-month income:    ($4 million)
12-month EPS:       ($0.49)
Profit Margin:         N/A
Market Cap:        $185.3 million 

Balance Sheet
Cash:                 $6.2 million    
Current Assets:      $41.2 million
Current Liabilities: $17.1 million 
Long-term Debt:       $7.1 million     

Ratios
Price-to-earnings:   N/A
Price-to-sales:      2.1 

HOW COULD YOU HAVE FOUND THIS DOUBLE?

Spectrian shares had run up in anticipation of a strong fourth quarter. The surge was so pronounced that when they announced earnings after the market close on April 17, the shares actually fell an eighth to $15 1/8 the following day.

The H&Q Conference provided a much more attractive entry point two weeks later with the stock at $13 1/4.

WHERE TO FROM HERE?

The analysts have been relentless in revising their outlook for the company this year. Earnings estimates for the next year have gone from $0.30 to $0.85 a share in just three months. The systematic upward revisions are comforting, but they have apparently already been worked into the soaring share price in the process.

Gross margins need to improve too. When a company reports a 71% surge in sales, as Spectrian did this past quarter, but shows flat earnings, there is ample room for improvement. With gross margins at 26% for the quarter vs. 31% the year before, the company can certainly become more efficient. And isn't that, after all, what its products are all about?

-Rick Aristotle Munarriz ([email protected])

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