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Value Bulldog
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I am a research analyst for a long/short value-oriented hedge fund. Most of my attention is focused on the tech, telecom and media sectors although I occasionally look for value (or its opposite) in other areas. Note that I take long and short positions in the stocks I discuss on Seeking Alpha.... More
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  • 2 earnings reports this week bode very well for AOSL 2 comments
    Jul 15, 2010 9:10 AM | about stocks: AOSL, FCS
    The first one is one you probably noticed- Intel. Intel indicated very healthy PC end markets with seasonal growth in the 2H of the year to complement the above-seasonal growth in 1H. The low end of their Q3 guidance was above consensus and it should be noted they have absolutely smashed their own Q1 and Q2 guidance.

    The second one was probably not noticed as much. Fairchild Semiconductor, one of AOSL's primary competitors in low-voltage MOSFETs, also posted stellar results, with revenue of $410M and adjusted EPS of $0.40 vs. the consensus of $399M and $0.31. Forward guidance was above consensus. Importantly, the company says channel inventory continues to be in the middle of the range while gross margin will continue to improve, indicating healthy industry conditions for suppliers.

    So, I expect AOSL to post stellar results. It will also be their first quarter to report as a public company so you can be sure that they and the analysts sandbagged the results. I would not be shocked to see the stock regain its IPO price of $18, although given that Fairchild is only up 5% despite posting great results and being cheap on an absolute basis, there really is no telling what the reaction will be. Regardless of the reaction, this looks like a good one to own if the MOSFET market continues to stay healthy.



    Disclosure: Long AOSL
    Themes: chip sector Stocks: AOSL, FCS
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  • ragingbullish
    , contributor
    Comments (11) | Send Message
     
    What is your reaction to earnings and the huge sell-off today? I am still holding the IPO @ $18. Squeezing margins that big a deal? Do you anticipate future dilution to sp from IPO deal? I feel stuck in my position and today is very hard to swallow.
    11 Aug 2010, 01:09 PM Reply Like
  • Value Bulldog
    , contributor
    Comments (107) | Send Message
     
    Author’s reply » My reaction is, ouch that stung. I thought I was stealing it buying at $13.50 to $14.50 per share. The top line was fine but forward margins look below expectations. First, I have to admit that I did not see the rapid turn in PC market demand coming, and the questions about the PC supply chain put forward projections in significant doubt and may put a lid on the stock until they are worked out. It's a bit bizarre to see people panicked about end demand when up until very recently the company and the MOSFET industry were having a hard time even meeting demand- AOSL indicated they were supply-limited in the quarter and they exited the quarter with one month channel inventory, below the target of two months. Still, the fact that they could not counter a price hike by their wafer supplier and the extent to which they are ramping up SG&A expenses is disappointing.

     

    Still, the reaction seems vastly over-done. The company now has about $5.00 per share in cash and $8.00 per share in tangible book value, which should limit downside. I can't construct a scenario where they lose money unless things get really, really bad. If this is just a slowdown and does not morph into a major recession the stock is only trading at about 2.5x EBITDA and 3.3x earnings after backing out cash, which continues to be an absurdly cheap valuation for a company that has shown strong growth over the last 5 years.
    15 Aug 2010, 09:00 AM Reply Like
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