A Chipmaker That May Yield Quick Profit
07/24/2007 12:00 am EST
Michael Murphy, editor of New World Radar Report, finds a niche semiconductor company that has a new product that he thinks is poised to benefit from the surge in handheld electronic devices.
QuickLogic (NASDAQ: QUIK) is a semiconductor company that began as a competitor to Xilinx and Altera in programmable logic semiconductors—these chips can be inserted into a hardware programmer that alters them to do different functions based on what the customer wants. For example, if the customer wants to sell a portable device that plays audio and another model that plays both audio and video, the same QuickLogic chip can be programmed for both of these uses.
The demand for programmable logic semiconductors is growing, and many customers, like Dell and Apple, are turning to companies like Xilinx, Altera, and QuickLogic for their chips.
For the past year, QUIK has been going through a radical transition to focus almost exclusively on top-tier manufactures of high-end, battery-powered, usually handheld, consumer electronics. For example, they have a low-power secure digital input/output controller that they optimized for high-capacity applications, like the memory cards used in digital cameras, MP3 players, and cell phones.
As the company was going through this transition period, it missed [earnings] guidance last year, which drove the stock to a low of $2.61 last September and $2.45 in March.
Then on April 25, QuickLogic introduced the new product that I've been waiting for—the ArcticLink. In addition to low power consumption, it adds important functions like USB 2.0 and Bluetooth support. These added capabilities are going to drive sales for ArcticLink, as market research firm iSuppli projects that by 2010 there will be 750 million handheld units shipped that include USB. iSuppli projects [Bluetooth] will be included in 680 million handheld units by 2010.
QuickLogic says that ArcticLink provides a highly flexible platform that enables designers to integrate a broad spectrum of interfaces: wireless devices, mobile TV, flash memory cards, micro hard disk drives, and optical drives in mobile products. Target markets include smart phones, portable media players, portable navigation devices, flash memory cards and numerous portable industrial products. EETimes’ design engineer readers just named ArcticLink a Top 10 new product in the processors and memories category.
There is a bit of risk that the June quarter will be softer than I expect as the older products wind down, but Wall Street expectations are already low: the consensus earnings estimates for a nine-cent loss in June and an eight-cent loss in September are probably correct, as QUIK absorbs the introductory expenses associated with ArcticLink. But the stock has already started moving up a little this month. The company also hired the former VP of Worldwide Sales at Broadcom, with the incentive of a boatload of out-of-the-money stock options. This guy has a great reputation, and I expect him to get the company in front of customers that they have not been able to crack before.
I want you to buy QUIK under $3.50, with an $8 target this time next year. (It closed under $3.50 Monday—Editor.)Subscribe to New World Investor here...
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...