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Tech Revisited

01/26/2007 12:00 am EST


John Buckingham

Editor, The Prudent Speculator

The TechValue Report combines the best of two worlds: Pioneering technology companies whose shares are trading at undervalued levels. Here, editors John Buckingham and Mark Mowrey take a fresh look at one of their previous recommendations...

"We first recommended Aetrium (ATRM NASDAQ GM) in August 1998. Four industry cycles and a partial sale later, the stock suffered mightily after the company reported Q3 results. It's the remarkably tame set of valuation metrics that brings us to purchase the stock today. And the volatility, of course, that put the name back on our buy list in the first place.

"Aetrium manufactures semiconductor test handling equipment, 'pick and place' chip handling equipment, which uses robotics to 'pick' the chips from a tray and 'place' them in carriers for testing, as well as gravity-fed machines, which use the force of gravity to drop chips into place for testing. Together generating 41% of last year's $16.4 million in revenue from the segment, each is better suited for different applications.

"Having chosen a few downturns ago to forego a specialty in temperature management, Aetrium instead focused on throughput, minimizing the total time to test chips and multiplying the number of chips a handler could test at one time. Aetrium has also taken the lead in adapting to the increased use of micro leadless packages (MLPs), which have heightened Aetrium's competitive positioning as chip makers have sought to increase production efficiencies.

"Aetrium maintains three additional business lines: test handler upgrades, add-ons and spare parts, comprising 27% of 2005 revenue; reliability test equipment, generating 24%; and semiconductor automation products, making up 8%.

"Aetrium had been making steady progress through the year, with Q3 revenue up 149% over the year-prior quarter to $9.2 million, while earnings of $0.12 per share reversed losses of $0.10 per share in Q3 2005. But the customers behind the revenue gain need some time to digest all the new equipment. As a result, Aetrium's book-to-bill fell below parity in Q3, and orders continue to be weak in the current quarter. Management now expects order gains to come not until the first quarter of next year from the company's two largest customers and expects that by that time one of the customers, "a US headquartered major integrated device manufacturer," will have begun to hasten purchases of later model test handlers.

"We think the post-Q3-earnings decline in the shares was overdone, leaving an attractive entry point for MPC. The cash-rich name now trades at just over 8x trailing earnings and 1.7x book value."

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