4 Semiconductor Stocks With Troubling Accounting Trends

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 |  Includes: GTATQ, MCRL, SWKS, YGE
by: Kapitall

To find chip companies with longevity in top-line growth, we focused on 2 statistics from the balance sheet, namely the growth in receivables, and inventories.

Although receivables are considered to be an asset, it becomes a risk when receivables grow and revenues decline. We looked through more than 50 balance sheets to find those with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.

Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.

We then moved to looking at growth in quarterly revenue slower than growth in quarterly inventory year-over-year. We also looked for companies with quarterly inventory increasing as a percent of current assets.

When revenue is growing slower than inventory, it may indicate that the company is having trouble selling its inventory - although this might just indicate inventory building or a change in sales policies.

We were left with 4 companies on our list. All have troubling accounting signals.

A Deeper Look

In addition to screening for the 2 accounting signals above, we took a deeper dive into the financials of Micrel Inc. (NASDAQ:MCRL). On January 31st, 2013, the company reported fourth quarter 2012 earnings per share (EPS) of $0.06, and revenues of $62.3 million. The company missed EPS consensus by $0.01. Additionally gross margins reported were 50.3%, 20 basis points worse than last year.

The company's balance sheet provided flexibility in a tough global macro environment with $104 million in cash and short-term investments or $1.72 per share. More importantly, Micrel continues to return cash to shareholders through share buybacks and quarterly dividend payments. This stock has a dividend of 1.7%, and 5-year dividend growth of 6.58%.

Do the troubling accounting signals still worry you?

The List

Click play below for the change in quarterly sales of the 4 semiconductor companies on our list.

Do you think these stocks will survive in a competitive environment? Use this list as a starting point for your own analysis.

1. Micrel Inc. : Designs, develops, manufactures, and markets high-performance analog power, mixed-signal, and digital integrated circuits (ICS) primarily in North America, Europe, and Asia.

  • Market cap at $592.49M, most recent closing price at $10.21.
  • Revenue grew by -2.04% during the most recent quarter ($62.93M vs. $64.24M y/y). Accounts receivable grew by 16.27% during the same time period ($35.16M vs. $30.24M y/y). Receivables, as a percentage of current assets, increased from 12.7% to 16.93% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • Revenue grew by -2.04% during the most recent quarter ($62.93M vs. $64.24M y/y). Inventory grew by 3.21% during the same time period ($38.95M vs. $37.74M y/y). Inventory, as a percentage of current assets, increased from 15.85% to 18.75% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

2. Skyworks Solutions Inc. (NASDAQ:SWKS): Offers analog and mixed signal semiconductors worldwide.

  • Market cap at $4.67B, most recent closing price at $24.30.
  • Revenue grew by 4.67% during the most recent quarter ($421.11M vs. $402.32M y/y). Accounts receivable grew by 67.24% during the same time period ($297.59M vs. $177.94M y/y). Receivables, as a percentage of current assets, increased from 21.8% to 33.69% during the most recent quarter (comparing 13 weeks ending 2012-09-28 to 13 weeks ending 2011-09-30).
  • Revenue grew by 4.67% during the most recent quarter ($421.11M vs. $402.32M y/y). Inventory grew by 17.53% during the same time period ($232.92M vs. $198.18M y/y). Inventory, as a percentage of current assets, increased from 24.28% to 26.37% during the most recent quarter (comparing 13 weeks ending 2012-09-28 to 13 weeks ending 2011-09-30).

3. Yingli Green Energy Holding Co. Ltd. (NYSE:YGE): Engages in the design, development, manufacture, marketing, sale, and installation of photovoltaic (PV) products in the People's Republic of China and internationally.

  • Market cap at $518.28M, most recent closing price at $3.31.
  • Revenue grew by -47.47% during the most recent quarter ($2,236.99M vs. $4,258.58M y/y). Accounts receivable grew by -3.66% during the same time period ($3,220.48M vs. $3,342.82M y/y). Receivables, as a percentage of current assets, increased from 24.15% to 26.83% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • Revenue grew by -47.47% during the most recent quarter ($2,236.99M vs. $4,258.58M y/y). Inventory grew by 9.86% during the same time period ($2,901.92M vs. $2,641.49M y/y). Inventory, as a percentage of current assets, increased from 19.08% to 24.18% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

4. GT Advanced Technologies Inc. (GTAT): Provides polysilicon production technology and multicrystalline ingot growth systems, and related photovoltaic (PV) manufacturing services for the solar industry worldwide.

  • Market cap at $424.87M, most recent closing price at $3.57.
  • Revenue grew by -49.44% during the most recent quarter ($110.06M vs. $217.69M y/y). Accounts receivable grew by 7.66% during the same time period ($112.52M vs. $104.51M y/y). Receivables, as a percentage of current assets, increased from 10.58% to 12.93% during the most recent quarter (comparing 3 months ending 2012-09-29 to 3 months ending 2011-10-01).
  • Revenue grew by -49.44% during the most recent quarter ($110.06M vs. $217.69M y/y). Inventory grew by 38.21% during the same time period ($216.28M vs. $156.49M y/y). Inventory, as a percentage of current assets, increased from 15.84% to 24.85% during the most recent quarter (comparing 3 months ending 2012-09-29 to 3 months ending 2011-10-01).

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.