Mobile Phone Chip Maker Dials Up A New Offering

May. 8.12 | About: Audience, Inc (ADNC)

Audience Prices IPO Shares

Audience (NASDAQ:ADNC), the semiconductor company that makes processors for mobile phones, is pricing 5.3 million shares at $14.00 - $16.00 per share. The company expects to raise just under $79 million on the deal that puts the total market cap of Audience at $290.9 million. The offering is underwritten by J.P. Morgan (NYSE:JPM), Credit Suisse (NYSE:CS), Deutsche Bank Securities (NYSE:DB) and Pacific Crest Securities.

Audience will also seek protections afforded to it as an emerging growth company as defined in the JOBS Act (Jumpstart Our Business Start-Ups). The bill, signed into law in early April, is designed to help small private companies make the transition to public markets. Audience already has a largely independent board and audit committee, but the JOBS Act also grants more relaxed reporting rules and ways to gauge interest in its IPO and market its shares before, during and after the registration process. Specifically, Audience states in its S1 it has elected to delay adoption of new or revised accounting standards.

Audience's Primary Products

Audience makes narrowband voice processors and wideband voice and audio processors for mobile phones and devices. The chips use a proprietary technology based on actual human hearing. Currently the processor is used in some big name products like the Sony Tablet S, HTC Titan and the Samsung Galaxy.

Competition In The Mobile Phone Semiconductor Industry

As with most technology markets, the mobile component sector is highly competitive. Audience directly competes with large public companies like Maxim (NASDAQ:MXIM), ON Semiconductor (ONNN), Qualcomm (NASDAQ:QCOM) and Texas Instruments (NYSE:TXN). In addition to numerous private companies that make similar products, at any point in time, other large semiconductor companies may enter the voice processor market and begin making components that directly compete with Audience's products.

Audience's Financials

Audience has had strong sales of its voice and audio solutions and has recorded revenue of $97.7 million for the full year of 2011. This was a $50 million increase of revenue over the year prior. For the three months ending March 31, 2012, The company reported revenue of $31.1 million. Taking into account Audience's proceeds from this offering, its net tangible book value will be $5.44 per share.

While the company had an increase in revenue for the three months ending March 31, 2012, part of it was due to recognized licensing royalty payments. In actuality the company had lower sales relating to a decrease in orders from one of its contract manufacturers. Unfortunately, Audience relies mostly on a small number of contract manufacturers and distributors for its revenue. For the year 2011, contract manufacturers for Apple Inc. (NASDAQ:AAPL) represented 75% of its revenue, while Samsung Electronics (OTC:SSNLF) accounted for another 20%.

How To Trade Audience

Audience's main competitors will have a lower P/E ratio and some also pay dividends. Texas Instruments trades at 16.2 times earnings and 3.2 times book value. It also pays out a $0.17 dividend. Two other competitors; Qualcomm and Maxim trade at 20.2 and 17.4 times earnings. Those two companies also trade at 3.2 times book value and offer dividends of 0.25 and 0.22 cents respectively. Finally, ON Semiconductor, which does not pay a dividend, trades at just 11 times earnings and 2.4 times book.

The computer and technology sector as a whole trades at 25.8 times earnings. At the mid point of the range Audience will trade at roughly 21.12 times earnings. A little high but very reasonable for a fast growing company. It will also trade at 2.75 times book value, putting it below many of its peers. This IPO is still very speculative, despite having a decent track record of net income. Another event to watch for is the end of the 180 day lockup period at which point 14 million of the 19 million shares outstanding after this offering will become eligible for sale.

With the low public float of shares, P/E and book value in range with its peers and the possible growth story, I would be interested in this stock. I try not to buy the IPO if it prices at the bottom of the range or below. Because that usually means there is not a lot of interest in the company and I'd prefer to put money elsewhere. When it prices at the top of the range or above it, not only does the company get more cash in the offering, it demonstrates a larger interest by investors in the company. So pay attention to where this stock prices and look for a decent pop if it comes in at the top of the range.

Sources: Audience S1, Audience Website, Nasdaq Market Site

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ADNC over the next 72 hours.