Semiconductor producer Monolithic Power Systems (MPWRE) is down over 11% today following a Piper Jaffrey downgrade. But Wedbush Morgan analysts Craig Berger and James Schneider sent a note to clients with a more positive take. Key points from Berger and Schneider:
* Q1 revenue guidance is disappointing as a key distributor built inventory in Q4, thus driving worse sequential shipments into Q1, though management believes this issue will be largely resolved by the end of the quarter.
* Q2 business is what matters now, in our view, given that only three weeks remain in Q1. We expect Q2 shipments will "snap back", increasing at least +15% QoQ as chip shipments are realigned with consumption following the distribution inventory workdown of Q1, and as seasonal build ramps up.
* NASDAQ delisting overhang likely removed as filings now appear complete; we expect the firm's symbol to return to MPWR in about one week.
* Clients should buy MPWRE aggressively on any pullback as our thesis remains that MPWRE will have sharp revenue growth in 2007 given the firm's ramping new products, new distributor agreements for initial U.S. and Europe penetration, easy cross-sell opportunities with its top-tier OEM customers, cost-driven competitive advantages, and exposure to fast growing, high volume consumer and portable end markets.
* Lowering 2006 EPS estimate from $0.85 to $0.60, 2007 EPS estimate from $1.35 to $1.20, and price target from $20 to $19; Reiterate BUY as near-term inventory issue presents a buying opportunity.
MPWRE 1-yr chart: