Much was made of Intel’s results report last week, particularly its warning of weak sales in the third quarter. When the prospects of the world’s largest chipmaker decline–Intel stock dropped to $17.60 this week, a 52-week low–it can bring a lot of smaller chip companies down with it.
Lagging demand for personal computers and a choppy, lackluster economy are the major culprits cited by Intel management. While global chip sales are rising, according to the Semiconductor Industry Association (http://www.sia-online.org/cs/papers_publications/press_release_detail?essrelease.id=1805), the conventional wisdom is the economy is not growing fast enough to buoy the chip making industry.
But Intel watchers and investors in the semiconductor industry are seeing a shift in chip making beyond the PC toward all things wireless. Baseband chips help mobile phones connect to cellular networks and chips that deliver wireless internet connections to a host of consumer electronics projects seem to be the wave of the chip future (http://online.wsj.com/article/SB10001424052748703618504575460721131232894.html?KEYWORDS=don+clark+intel). Cloud computing, netbook and video game markets are also key areas for growth.
The types of chips required for these other applications tend to be much smaller and more power efficient than those used in computers. And several smallcaps are toiling in this new space, perhaps poised for an upswing as the market turns. Here are a few, including Beta’s (a measure of the volatility of the stock, 1 being the same volatility of the market, higher numbers meaning higher volatility):
Hilssboro, OR-based Lattice Semiconductor Corp. (Nasdaq: LSCC, http://www.latticesemi.com) designs, develops and markets programmable logic products and related software. It sells its products directly to end customers and through distributors, and primarily servies OEMs in the communications, computing, consumer, industrial, automotive, medical and military end markets. Its stock trades more than 1 million shares a day with a market cap north of $500 million. It has traded in the $1.87–$6 range for the year, now trades near its moving averages for the year at $4.42. Its Beta is near 2.
Newark, CA-based Smart Modular Technologies (NYSE: WWH, http://www.smartm.com) designs, manufactures and supplies value added subsystems to OEMs worldwide. Its subsystem products include memory modules, solid state drives, embedded computing and thin film transistor-liquid crystal display products. Their products target defense, aerospace, industrial automation, medical, transportation and enterprise industries. With a $300 million market cap and low P/E, the stock has a Beta near 2 and is trading around its moving average near $5.
Irvine, CA-based Netlist * (Nasdaq: NLST, http://www.netlist.com) is a leading provider of high performance modular memory subsystems to the world’s premier OEMs. In November 2009 Netlist launched HyperCloud, the world’s first 16GB, 2 virtual rank memory modules for servers. HyperCloud is designed to eliminate memory bottlenecks in datacenter applications. In datacenters servers are typically under-used due to these memory bottlenecs and Netlist says the HyperCloud chip “fills the datacenter memory gap,” and by breaking memory barriers HyperCoud successfully supports virtualization and cloud computing applications. Netlist already has established good customer relationships and HyperCloud is being qualified by many of the OEMs. The stock averages about 1 million shares in trading a day, a year high near $8 and low of $0.50 and at $2.63 on Sept. 1 is below its 50- and 200-day moving averages. Beta is very high near 7.
Santa Ana, CA-based Stec Inc (Nasdaq: STEC, http://www.stec-inc.com) received a recent upgrade from analysts at Think Equity. The company designs, manufactures and markets enterprise-class flash solid state drives for use in high performance storage and server systems. It also offers dynamic random access memory (DRAM) products. STEC has a market cap near $600 million, trades nearly 2 million shares a day, has a 52-week range of $43–$9.50 with a current price of $11.61 and a Beta near 2.
Mountain View, CA-based Actel Corp. (Nasdaq: ACTL, http://www.actel.com) engages in the design, development and marketing of flash- and antifuse-based field programmable gate arrays. It offers a range of single chip, flash-based solutions in the aerospace, automotive, avionics, communications, consumer, industrial and medical markets. ACTL trades less than 100,000 shares a day with a 52-week range of $17-$10.25. It is trading just above its moving averages near $15 and has the lowest Beta of the stocks highlighted here–just above 1.
* Denotes Allen & Caron client