Power up with Power One

03/04/2005 12:00 am EST

Focus:

George Gilder

Founder and President, Gilder Publishing, LLC

George Gilder, along with analyst Bret Swanson, epitomizes the notion of using solid research, conviction, and patience to invest for long-term gains. A good example is this overview of Power-One, a "play on a fundamental innovation that will not pay off fully for half a decade."

"The digital economy now consumes some 14% of US electricity, having become the chief source of new energy consumption. Delivering the 'right current' at the 'right voltage' with increasing reliability has become a key challenge. In addition, power management is the thermostat of an electronic architecture that continues to heat up. Not surprisingly, then, some 50% of the revenues of all the analog chip companies comes from power management. That's today. Tomorrow, Power One (PWER NASDAQ) may change that.

"The company is a paradigm play on digital power management chips. An expert in the power arena for 30 years, the company has recently figured out how to digitize power management and introduced the fruits of a $50 million program to radically simplify advanced printed circuit boards. Instead of many tens or hundreds of parts, Power-One condenses all board-level power into two. Its integrated board-level power systemknown as the Z-One platform promises to remake the company's already strong line of power products. It may remake the industry.

"A somewhat rocky December quarter presents a buying opportunity for investors interested in Power-One's innovative new line of Z-One powerchips. Sales were $4m higher than expected, but unforeseen costs more than offset the gain. The company announced actions to rein in the offending Telecom Systems division, moving it from ‘high cost Norway,’ where a professional engineer costs $100,000 a year, to ‘low cost Slovakia,’ with an average engineer cost of $12,000.

"Meanwhile, PWER says it has ten design wins in the telecom, server, and storage markets for the Z-One platform, which digitizes and radically simplifies circuit-board-level power management. Korea's LG is testing Z-One in a number of diverse systems. Cisco, Nokia, Lucent, and Nortel are its largest customers. With a price-to-sales multiple of just two, a short-term move to profitability plus the emerging Z-One digital power management revolution make PWER a great buy-and-hold. Power One does not expect significant sales from its new technology until 2006. Thus, if you buy this stock, leave it alone for a few years. You will be pleasantly surprised."

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