Trident Micro's Likely to Be Snapped Up by a Larger Competitor

Trident Microsystems (TRID) is a leading semiconductor company in the hot consumer television market with its high end chip sets designed for the big screen LCD televisions looks good as a potential buyout candidate to come. The company sports a very strong cash position and has leading technologies that potential acquirers such as Nvidia (NVDA), Mediatek, or Integrated Device Technology (IDTI) may wish acquire in order to bolster their own product offerings beyond the traditional desktop markets.

Trident Microsystems has been on the buyout rumor block many times in the recent past. Mediatek, a leading broad-base Chinese semiconductor company (which doesn't trade in the U.S.), was once rumored as a serious candidate to buy Trident Microsystems when the stock was trading in the $20 range a few months ago. Several analysts cited the buyout would make sense for Mediatek but perhaps the acquisition price was a bit too steep for Mediatek to pay for at the time. Now, Trident Microsystems' stock price, currently trading in the $6 range, has come down dramatically over the last couple months, which will make any potential acquirer be more willing to step up to the plate and make a solid offer. I believe the stock is currently selling at a steep discount to its peers.

The long case for Trident Microsystems has never been stronger than it is at its current trading level. The strong growth in the hot consumer television market this year, especially in high definition television sets, will get even stronger in the years to come. Many analysts predict the high-end LCD television front will really become huge starting next year due to lower pricing.

This is where Trident Microsystems has the strongest product offerings, as well as strong relationships with most of the top name brand consumer electronics companies such as Sony (SNE), Sharp Electronics (SHCAY.PK), Samsung, Philips (LPL), and Toshiba (TOSBF.PK). Not only does Trident Microsystems sport about $3-per-share in hard cash with no debt on the books, it also contains a very attractive forward PE ration of 7 at about $0.90 FY2008 EPS estimate. As a result, TRID is trading at a significant ~60% discount to its peers such as Nvidia, Genesis Microchip (GNSS), or Integrated Device Technologies. I believe Trident Microsystems has a fair value of about $12 which puts the PE at about the 14 sector range. Based on this, Trident Microsystems fits the profile of a potential buyout candidate.

Disclosure: Author is long TRID.

Comments

[Justin Time:]

How in the world do you arrive at the conclusion that TRID is trading at a significant discount to its peers? GNSS is trading approximately at cash value, with enterprise value of approximately zero. Pixelworks is trading at a discount to cash value. NVDA and IDTI are not peers - neither company is involved in the flat panel TV market. Do your homework and quit using this site as a means to pump your position, which I would guess approximates the Titanic in terms of how far underwater it is.

2007 Dec 05 07:40 PM

[Passerby:]

Good analysis. I would even venture to say prescient. I don't follow the sector too closely, but based on the Genesis buyout and post-buyout comments by the Lehman Brothers analyst, you probably hit the nail square on the head. Trident should be next on the auction block. Has Goldman Sachs covered it's short position yet and will they be firing more bullets at this?

2007 Dec 13 01:41 AM