Daily Trouble |
1\04 Double
|
Related Items |
|
<DAILY TROUBLE>
Tuesday, January 5, 1999
Artisan Components
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARTI)") else Response.Write("(Nasdaq: ARTI)") end if %>
Phone: 408-734-5600
Website: http://www.artisan.com
Price (1/4/98): $6 3/8
HOW DID IT FIND TROUBLE?
After doubling to a high around $23 per share just three months after going public in February, Artisan Component's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARTI)") else Response.Write("(Nasdaq: ARTI)") end if %> stock has charted an ugly pattern. This semiconductor chip design firm has been hit by Japan's troubles and an earnings warning that has left it trading not far from its cash levels.
The entire semiconductor industry has been short-circuited over the last year or so as prices on memory and other chips plunged and Asia's economic troubles slowed the rollout of new fabrication equipment. Although investors bought into Artisan's story in February, and again in April when the company issued more shares at $18 and a number of shareholders cashed out some holdings, the challenging climate became a more pressing concern late this summer as international financial turmoil hit hard.
It didn't help that still more long-term holders took advantage of the end of the lock-up period to sell stock in August at just over $12 a share. They must have seen what was coming.
Despite strong results for the fiscal year that ended September 30, Artisan's next move down followed the December 16 warning that Q1 results would miss estimates. With some analysts expecting about $5.4 million in sales for the quarter, Artisan said that project delays "related to internal problems at two of its major customers" meant that Q1 sales would come in between $2.7 and $3.3 million. As a result, the company now expects an operating loss of $1 to $1.5 million for the period.
Analysts are now looking for losses through the March quarter, with royalty revenues kicking in the latter half of FY99 and a recovery in the semiconductor market adding to growth thereafter. At least that's the best guess at the moment. Investors have apparently decided to take their losses and wait until the tea leaves are easier to read.
BUSINESS DESCRIPTION
Artisan develops intellectual property used in the design of semiconductors. Its embedded RAM, standard cell, and input/output components are licensed to semiconductor manufacturers and their fabless customers for use with chips that go into portable computing devices, cell phones, consumer multimedia products, automotive electronics, personal computers, and workstations.
Artisan is focused on the high-volume, system-on-a-chip (SOC) market. Its designs constitute more than 80% of the area on many SOCs. Licensees include many of the world's top chipmakers, including Fujitsu, GEC Plessey, Hitachi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HIT)") else Response.Write("(NYSE: HIT)") end if %>, NEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NIPNY)") else Response.Write("(Nasdaq: NIPNY)") end if %>, Newport Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEWP)") else Response.Write("(Nasdaq: NEWP)") end if %>, Oki Electric Industry Company Ltd., SGS-Thomson, Siemens, Taiwan Semiconductor (TSMC) <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSM)") else Response.Write("(NYSE: TSM)") end if %>, Toshiba, and VLSI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %>.
Its top five customers accounted for 61% of sales in the first half of FY98. Over the same period, overseas customers made up 74% of sales.
Competitors include Aspec Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPCE)") else Response.Write("(Nasdaq: ASPCE)") end if %>, Avant! Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %>, Duet Corp., Mentor Graphics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MENT)") else Response.Write("(Nasdaq: MENT)") end if %>, and the Silicon Architects unit of Synopsys Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNPS)") else Response.Write("(Nasdaq: SNPS)") end if %>. Artisan also competes against the internal design groups at its chipmaking customers and against suppliers of electronic design automation software tools.
As of April 30, insiders owned about 45% of the stock.
FINANCIAL FACTS
Income Statement
12-month sales: $16.6 million
12-month income: $2.3
12-month EPS: $0.18
Profit Margin: 13.9%
Market Cap: $92.7 million
Enterprise Value: $45.5 million
Balance Sheet
Cash: $47.2 million
Current Assets: $53.6 million
Current Liabilities: $3.7 million
Long-Term Debt: none
Ratios
Price-to-earnings: 35.4
Price-to-sales: 5.6
EV-to-sales: 2.7
HOW COULD YOU HAVE SEEN IT COMING?
Record fourth quarter revenue of $5.2 million represented a 71% gain from a year ago. EPS hit $0.07, a penny ahead of estimates and 250% better than in FY97.
In announcing results, CEO Mark Templeton noted that Artisan delivered products to top manufacturers such as NEC, Siemens, STMicroelectronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STM)") else Response.Write("(NYSE: STM)") end if %>, TSMC, and Oki Electric during the quarter. Better yet, most adopted Artisan's new royalty model, which allows the company to profit based on the volume of chips sold using its designs.
And fabless chipmakers (ones that don't have their own fabricating facilities) are using Artisan's library of designs like never before. TSMC has distributed Artisan's intellectual property to over half of its 200 customers, and United Microelectronics to 70 of its customers. Artisan is also working to provide direct support to these fabless chipmakers. All this bodes well for royalty streams in the June quarter and thereafter.
Still, the company warned of continued delays from its Japanese customers. Given Artisan's lengthy sales cycle and the firm's transition from straight licensing to royalty deals, the opportunity for an earnings disappointment was there.
Perhaps the clearest sign of impending trouble, though, was August stock selling by insiders. You just never like to see insiders selling with a stock at its lows.
WHERE TO FROM HERE?
Artisan is sitting on $3.25 per share in cash before taking into account the expected Q1 operating loss. So the stock now looks pretty cheap assuming a turnaround is in the offing.
According to the analysts (who've been too optimistic of late), Artisan could earn $0.05 per share for FY99 ending in September, and $0.47 per share the following year. If that proves correct, the stock could easily double over the next 18 months or so.
While Hambrecht & Quist cut its rating from "buy" to "hold" on December 18, CS First Boston shrugged off the Q1 warning and maintained a "strong buy" rating on the company with a target price of $12 per share. That might be a smart call, assuming that royalty income does pick up in the June period and beyond thanks to increased orders to the communications market and the conversion of STMicroelectronics, Artisan's largest customer, to a royalty deal.
Investors with some experience investing in the semiconductor industry should take a closer look at Artisan. Others should be prepared to do a lot of research before approaching these shares. While the current price appears to factor in much of the downside risk, Fools must recognize that investing in such a complex industry requires specialized knowledge or the active cultivation of somewhat arcane information sources.
-- Louis Corrigan
([email protected])
Check out the Daily Trouble Message Board!
|
|||||||||
<% if request.querystring("source") = "yhoolnk" then referer = Request.ServerVariables("HTTP_REFERER") if referer = "" then referer = "http://finance.yahoo.com/" response.write " " end if %> <% function YahooWelcome if gsCookieUsername = "" and request.querystring("source") = "yhoolnk" then %> |
Welcome, Fool! |
|
Be a Fool and get free, unlimited access to our site.
What we offer: |
© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us |