After being dormant for a long time, Actions Semiconductor Co. Ltd.'s (NASDAQ:ACTS) stock finally began moving on January 8, 2013. Since then, the stock has had a pretty good run. So as an investor, I am asking: now what? Does this upward movement have legs or will it fade away just like past flash bursts?
Financially, the company did turn its bottom line from red to green in the last quarter, but that result is nothing close to splendid as the third quarter is traditionally the company's strongest. In fact, Q3 2012 was a rare occasion when the management team did not actually meet its revenue target. Table 1 shows the company's revenue, gross profit, and net income for the past 10 reported quarters.
Table 1: Estimated vs. Actual Revenue, Gross Profit, and Net Income for the Past 10 Quarters
(All Numbers in $1,000s)
Revenue: Management Estimate
Less than 3,800
Actual Gross Profit
Actual Net Income
Then what is the main force behind ACTS's recent strong upswing? There was only one news item: the introduction of the Ramos tablet - which is Digital Technology's new tablet product with Actions' ATM7029 Chipset inside - coincided with the timing of this upswing. So does this new product have an exceptionally strong sales outlook that may significantly boost Actions' revenue run rate?
I looked at the product's page on the RAmos website. To me, the specifications are pretty good for a mainstream tablet PC, especially considering its low price of RMB 899 (about U.S. $144). However, I don't think this new product is so superior that it could ravage all of its competitors' products and seize a huge market share. RAmos has a newer and more expensive tablet PC, the W42. However, this model uses Samsung's Exynos 4412 533-MHz processor instead of Actions' processor. So even with the same customer, Actions has some competition. The good thing, as it seems to me, is that the specifications of the two models are actually very similar. If I were going to buy one, I would choose the W41 to save RMB 400. According to the RAmos description on its English website, the company is "one of the top 5 Chinese brands in the digital products industry." In the last ranking of tablet PC brands in China that I found, RAmos had a 0.62% market share. Granted, the data was for Q2 2012 and outdated for the market for tablet PCs, which changes rapidly during every quarter. So maybe RAmos now has a much bigger say in the market. We'll just have to see.
The company is going to release its Q4 2012 results on January 24, 2013. Another electronics maker, Ainol Electronic, also recently launched a new tablet PC that uses the Actions' chipset. Perhaps the management team will see a big boost in the company's revenue in Q1 2013. We'll see about that soon enough.
Another ongoing issue for Actions is the huge pile of cash equivalents on its balance sheet. If the company's revenue and gross profit start to grow faster, as many investors have eagerly anticipated for years, the company should implement more aggressive measures of returning the cash to investors (via tender offers, share buybacks, dividends, etc.) because now it has less of a need to use interest income to cover its operating losses. In the current distrustful atmosphere for Chinese small caps, keeping an excess amount of cash on a company's balance sheet is not especially appealing to many investors.
BCD Semiconductor Manufacturing (NASDAQ:BCDS), another Chinese semiconductor company, recently announced a takeover bid at $8 per share from Diodes Incorporated (NASDAQ:DIOD). As a result, rumors of Actions being the next takeover target have surfaced on discussion boards. I have said in my previous articles that such an outcome is certainly possible for Actions, considering its brand name and IP.
Ironically, since BCDS announced its takeover news, its Board of Directors has been investigated by an array of law firms for a potential breach in fiduciary duty for selling the company at a price widely deemed as too low. So it seems that nowadays, no matter what a Chinese small-cap company does, some investors are going to be unhappy. The investing community has to make up its mind aggregately: Do you want to wait for a long time to potentially reap an outrageous gain or to lock in a less than maximum but still strong gain in the short term?
Disclosure: I am long ACTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.