Genesis Microchip Gets Flamed (GNSS)

May. 4.06 | About: Genesis Microchip (GNSS)

Traders abandoned the shares of Genesis Microchip Inc. (NASD:GNSS) yesterday as if they were fleeing a burning house. For its fiscal Q4, ending March 31, 2006, revenue actually rose from the same period a year earlier moving from $52.9 million to $60.9 million. Operating loss rose to $2.1 from $960,00. For the full fiscal year, revenue moved up to $269.5 million from $204.1 million in the previous year. And, operating income went positive for the year to the tune of $19.1 million from a loss of $8.4 million the year before.

But, the quarter was a sign of a significant slowdown, both from the company's annual run rate and from the immediately preceding quarter. The December 31 quarter had revenue of $74 million, so the fall-off was sharp.

Genesis Microchip, which designs image processing systems for flat panel TVs and PC displays, is in a bit of a bind.

The company's leadership has put on its game face. The company's CEO tried to rally the troops with positive comments about the near-term: "While we are not satisfied with our first quarter revenue outlook, I am confident that our design win profile and customer product ramps, supported by a seasonally strong market and will generate solid double-digit revenue and profitability growth in our fiscal second quarter."

However, guidance seemed to indicate otherwise. The company said the June 06 quarter would have revenue of $55 to $60 million, which would be another sequential drop.

Wall Street is tired of the Genesis story. Revenues for the last three fiscal years have been relatively flat and the company has had an operating loss in each of these. The promise that growth is just around the corner is now discounted by shareholders and it shows in the stock price.

The sell-off after earnings brought the Genesis Microchip shares near the 52-week low. The stock trades at $13.11, down from a high for the period of $27.69. The company has a market capitalization of $465 million with $185 million in cash on the balance sheet. The price to sales ratio for the stock is about 1.7 times. Backing out the cash, it is closer to one times sales.

With the results the company is posting, those anemic multiples seem about right.

GNSS 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com