Techwell: New Product Pipeline Looking Good for Recovery

By Ken Nagy, CFA

Techwell, Inc. (TWLL) is a fabless semiconductor company that designs mixed signal ICs for multiple video applications. We continue to believe that the security/surveillance market will be stronger in 2009 compared to other markets, withstanding, to an extent, the impact of the recession.

The company’s exposure to Asian customers and markets is a key factor in this respect. Techwell also has several new products in the pipeline that are expected to have a positive impact on profitability once the recession is over. We believe the other segments will remain soft, at least until 2010.

Auto revenue rebounded in the last quarter, and while the growth rate may not be sustainable, an increasing percentage of auto revenue in the mix will lower margins and bring them closer to the long-term model. Although management is optimistic about the benefits of the 0.18 transition, the impact on margins may not be so great in view of the lower level of sales.

Security
Within the security/surveillance market, Techwell has leveraged its mixed signal video decoding technology and integrated a number of security specific functions required to display, store and transport analog video signals from security surveillance cameras. Based on data from IMS Research, management expects the company’s addressable market within DVRs, video servers and multiplexers for security/surveillance systems to grow at a CAGR of 25% from around $100 million in 2006 to $350 million in 2011.

LCD
According to research firm Display Search, the advanced TV market is expected to grow from 13.2 million units in 2004 to 101.8 million units in 2009, representing a CAGR of 50%. More recent research from iSuppli states that worldwide shipments of LCD TVs will increase at a CAGR of 67% from $100.1 million in 2007 to $193.9 million units in 2012.

Techwell is a very small player in this market, selling around half a million video decoders per month into the advanced TV, multifunction monitor (MFM), and DVD Recorder markets.

Auto
Techwell has integrated its video decoding technology with advanced display processing, targeting navigation, entertainment and driver information systems in cars. Based on data from Telematics Research Group, The addressable market for the company’s solutions will grow at a CAGR of 20% from around $50 million in 2007 to $100 million in 2011.