Wedbush Morgan analysts Craig Berger and James Schneider sent a note to clients Monday on consumer electronics chipmaker O2Micro (NASDAQ:OIIM). The analysts have a 'hold' rating on the stock. Key excerpts:
● Recent channel checks show that O2Micro's litigation strategy is beginning to benefit its CCFL chip business, along with competitor Microsemi, as some customers shift business away from Monolithic Power Systems.
● O2Micro's announcement listing its primary shares on the Hong Kong Stock Exchange represents an investor overhang, in our view. We see this move as a negative, likely signaling the company's intention to proceed with a secondary offering in the future.
● Separately, we examined 2006 revenue growth drivers in O2's consumer business and conclude that CCFL shipments into LCD TVs are the primary growth driver for 2006, and that our forecast is not overly conservative.
● We investigated revenue contribution scenarios from O2Micro's ramping new products and conclude that these products should have only a modest impact on 2006 revenues; we look for better visibility into new product revenue contribution in 2007.
● Although we see potential in O2's product and patent portfolio, we remain on the sidelines given poor visibility into new product ramps, a lack of business transparency, continued litigation spending impacting earnings, and share overhangs from the secondary offering and HKSE listing.