Qimonda: A Deep Value Play For Vista and Video Consoles

| About: QIMONDA AG (QI)

Munich-based Qimonda (QI) is a largely unknown tech market leader. It is the #2 DRAM memory (the memory your PC or Playstation uses while on) player globally after Samsung. US-based Micron Technologies (NASDAQ:MU) is now #4 after diversifying its portfolio (e.g., into more Flash memory). With the coming consumer launch of memory-hungry Microsoft (NASDAQ:MSFT) Vista and the still massively undersupplied 4th generation video console boom, it might be one of the least known and most undervalued possible winners in the next years.

Analysts see over 20% annual top line growth in Qimonda's financial year to the end of September, coming to over $6B. They also see profits growing over 5 times to $1.67 per share. This gives a PE of 10 given the recent stock price (vs. 18.4 for Micron). P/S on 06-07 sales is 0.9 (vs. 1.6 for Micron). EV/EBITA on 05-06 actuals is 4.3 (vs. 4.9 from Micron). The company is cash rich (over $4 per share) with relatively limited debt.14% of

Qimonda was spun off from Germany's Infineon (IFX) (itself spun off earlier from Siemens (SI)) in an August NYSE IPO. The IPO was seen as unsuccessful since the number of shares issued was lower than originally planned, but this might have as much to do with the dried-up IPO market at the time as with fundamentals.

Gartner sees 50% annual DRAM volume growth in the years to 2010. A question is how pricing will react. The DRAM business has been rather boom and bust historically, and there is a mixed analysis in the press (e.g., see Barrons Weekday Trader: A Tech Spinoff That's on the Mark, by Tiernan Ray and The Memory Glut of 2007, by Bill Alpert).

Qimonda itself has pushed into non-PC applications and is, for example, the preferred supplier to Microsoft's Xbox360 for Graphics memory. It can also be found in the super-hot Nintendo (OTCPK:NTDOY) Wii (Under The Hood: Inside The Nintendo Wii - Technology News, by TechWeb)

More direct market views from the players themselves are bullish (e.g., see Micron's December conference call or Samsung's view in Businessweek: Why Samsung Is Still Smiling). Qimonda itself points (so far) to continued very robust markets. Given the global Vista launch this year and the just started growth of Xbox360, Sony's (NYSE:SNE) PS2/3 and Wii, prospects seem quite good for this Tech “value” stock. Qimonda reports earnings next Tuesday January 23. Their site is a great source for further insight - especially their last conference call and investor presentation.

QI 6-mo chart

Disclosure: Author is long QI.