Integrated Device: Tech Transformation

03/17/2015 8:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

My latest featured recommendation is a company that has gone through a major transformation and is now busting out of the other end running on all cylinders, asserts Tom Bishop, small-cap expert and editor of BI Research.

Over the last few years, Integrated Device Technology (IDTI) went through a transformation including discontinued operations, asset sales, and special charges. Despite this, sales held their own.

So what does Integrated Device do? The firm is involved in wireless charging, which means putting your smartphone on or near a recharging surface to recharge it without the need to plug each into its own a charger.

IDTI was early into this market and is positioned right in the heart of it. Now the phone or notepad, of course, has to be capable of wireless recharging; these devices need to contain the appropriate technology and semiconductors to do this…as will soon be common place.

Long story short, IDTI is on the leading edge of supplying the semiconductor solutions on both sides of making wireless charging possible.

Meanwhile, these devices not only require recharging, they also require communication with all the various sources of content. And IDTI is right in the thick of all of these areas.

This focus on these rapidly growing markets is no accident, which gets us to the company’s major transformation. A few years ago, the company determined that it was all over the place and needed to focus on a few major, high-growth areas.

So, beginning in 2012, the company began to shed businesses outside its core area. And with that process winding down, in January 2014 it brought in a new CEO to replace the temporary CEO.

And Greg Waters is no slouch; he was the Executive Vice President and General Manager for Skyworks Solutions (SWKS) from 2003 to 2012 where he led their Front End Solutions business to a decisive #1 industry position.

So, bottom line, today IDTI is lean, ripped, and keenly focused for the future.  As far as EPS goes, I like the trajectory. I see 25% growth to $1.10 for the year ahead. And analysts see at least that growth rate for the next 3-5 years.

As a result of its transformation, adjusted operating margins climbed from 5% to 20% in FY3/14. IDTI has amassed $511 million in cash, which it actively uses to buy back shares. In my book, these shares rate a strong buy.

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