Update: IXYS Corporation's Q2 Earnings Show Solid Sales, Rising EPS And Bookings

Aug. 8.14 | About: IXYS Corporation (IXYS)


Revenue rose 23.7% Y/Y, boosted by acquisition of Samsung’s microcontroller business, EPS increased to $0.11 from $0.06 while gross margin fell slightly to 28.4% but bookings improved.

I am reiterating my long thesis, raising the target price due to improving operating results to $13 per share, offering a ~13% upside within 12 months. Volatility likely to continue.

The long thesis has worked almost precisely, with the stock currently trading at my target price.

IXYS Corporation (NASDAQ:IXYS) reported second quarter 2014 result (SEC filing, press release, earnings call). Net revenue jumped 23.7% Y/Y to $88.1M. EPS was $0.11 versus $0.06 a year ago. Sequentially, EPS also increased. Non-GAAP EPS was $0.17 versus $0.08 a year ago. Gross margin fell 1.3 percentage points to 28.4%. IXYS continued in its efforts to diversify its revenue streams, with stronger focus on growing integrated circuit products in addition to the core power semiconductor business. The company also continued to outsource to Asia in search of lower costs. Cash decreased due to one-time expenses related to installment payments for the acquisition of Samsung's (OTC:SSNLF) 4-bit and 8-bit microcontroller business in 2013. IXYS maintained its dividend at $0.03 per quarter, yielding ~1.1% annually.

In terms of segments, sales are beginning to ramp up, especially in the industrial, medical and renewable energy markets. IXYS is currently in negotiations to ask higher prices with two significant customers in order to improve margins. The risk is IXYS will lose some low-margin revenue in the process, but one of the customers already started placing orders at higher prices. Generally, apart from these two large European customers, the industrial market, the medical market and integrated circuits, as well as some pockets in alternative energy and power management, are showing very solid margins. While there are signs of optimism regarding future sales based on several important customers and the book-to-bill ratio stands at a healthy 1.08x, the summer months are seasonally slow for semiconductors and purchasing trends have yet to resume in full force. Therefore, IXYS expects flat revenues for Q3.

Exactly a year ago, I wrote in my original IXYS analysis that the stock's fair value is ~$11.46, and the company needs to deliver more value to investors as opposed to its management in order to grow the stock price. The thesis played out almost precisely, with the stock trading at $11.53 today - virtually at the same level as a year ago and almost precisely at my last year's fair value estimate of $11.46. I have to admin though that small-caps have been punished recently as a group and underperformed the S&P 500, so I am giving IXYS the benefit of the doubt and raising my target price slightly to $13 on improving operating results of IXYS, expected improved small-cap relative performance and the passage of one year since my last valuation. However, due to the risky and volatile nature of the semiconductor sector, I advise investors to protect the downside, for example by buying 10%-out-of-money puts. IXYS is not very suitable as a buy-and-hold investment due to the volatility and cyclicality, so the stock can also be swing-traded as it oscillates around its fair value.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.