Anadigics Sell-Off Overdone - Needham

Talk about the horse and the barn door.

Amidst a 38% plunge in shares of chip maker Anadigics (ANAD) following a gloomy pre-announcement last night, analyst Pierre MacCagno of Needham & Co. today reiterated his “Strong Buy” rating on the stock while cutting his price target from $14 to $6. Thanks for the heads-up.

To recap, Anadigics yesterday announced that for its current, third fiscal quarter, cell-phone makers have shown less demand for its chips, and the company is putting off some chip production, leading the company to revise its revenue expectation from a range of $75 million to $81 million given back on July 22 to $62 million to $65 million. Ouch! And the company now sees profit per share in a range of negative 1 cent to a profit of 1 cent, excluding some costs, down from an expected range of $.10 to $.14. The Street’s consensus numbers are still at $74 million and 12 cents.

Let us note as well that Anadigics’s old forecast was already a disappointment when it was offered last month. Talk about the other shoe!

MacCagno, however, is maintaining his Strong Buy rating even while lowering estimates and cutting his price target to $6 from $14. MacCagno says Anadigics had put customers “on allocation” in the fourth quarter of last year and the first quarter of this year, presumably leading to a buildup of inventory. Combined with a loss of market share among some customers, Anadigics’ cell-phone related business probably is down 40% this quarter. Still, “Anadigics remains a revenue and margin growth story that is strategically positioned on the convergence of video/voice & data markets with leading customers which are growing at double digit-growth rates with very favorable margins.” For 2008, MacCagno’s sales estimate goes from $313 million to $285 million, and from $376 million in 2009 to $308 million.

Comments

[Ravee:]

1. Weak Economy - CEO cites weak economy for lower revenue. I do not believe in his theory. Though economy is weak acorss all globe, cell phone market is growing in double digits. Users in the Developed worlds are going for smart phones. User base is multipling in developing countries. If the market is weak, people should not have queued up for iPhones.
2. Competitive Edge - Is ANAD is losing its market to competetors? I see lot of new entrants in this market. Technology is rapidly changing. ANAD being old (started in 1984) , I suspect they are losing technical advantage and hence competive edge.
I suggest do your research, prove my number 2 is worng and then buy.

2008 Aug 09 11:54 PM