F1Q10 (Qtr End 9/30/09) Earnings Call

October 26, 2009 5:00 pm ET

F4Q09 Earnings Call

July 27, 2009 5:00 pm ET

Struggling video chip maker Trident Microsystems (TRID), which collapsed last year amid increasing competition from Broadcom (BRCM) and others, dashed hopes of optimists once again Monday evening, missing Q4 estimates for sales and profit. The company did forecast above consensus for the fiscal first quarter.

Fiscal Q4 sales fell 62% to $14.9 million versus the average $16.97 million estimate, yielding a net loss of 24 cents a share, a penny worse than expected. However, for the current quarter, the company forecast revenue of $22 million to $25 million above the average $21.9 million estimate.

Top activist investors typically look for companies that can unlock significant shareholder value through a specific corporate event, such as a sale, liquidation or recapitalization.

Activists scour the investment landscape for companies that are not controlled, i.e., firms in which senior executives and directors have a relatively small percentage of the overall shareholder vote. This allows aggressive outside investors to pressure corporate incumbents to take the actions required to bring about positive change. If insiders refuse to maximize shareholder value, skilled activists may be able to remove them through a proxy contest or an outright acquisition of the company via an unsolicited tender offer.

WHAT THE COMPANY DOES

F3Q09 (Qtr End 3/31/09) Earnings Call

April 28, 2009 5:00 PM ET

The Manual of Ideas research team recently jumped into the proverbial stock market "bargain bin" to try to uncover some compelling values. Here is what we found:

Price Does Not Equal Value

Having recently lost several key Asian customers in the brutally competitive digital TV market, Trident Microsystems (TRID) went shopping in Europe last week to rebuild its top line. On its trip, Trident got a pretty good bargain. It will hand over some seven million shares, valued at roughly $10.3m, to Switzerland’s Micronas Semiconductor for three consumer product lines. We understand that the three units were generating more than $100m a year in sales.

The purchase comes at a crucial time for Trident. Revenue at the company has plummeted from $258m in the past fiscal year, which ended last June. With two quarters and guidance for the third quarter already in the books, revenue at Trident has totaled just $61m. That implies sales for the current fiscal year could well be just one-quarter the previous fiscal year’s figure. Along the way, Trident has slipped from a profitable business to a cash-burning one. Its difficulties haven’t been lost on Wall Street, which values the debt-free vendor at about $100m, just half its current cash level.

Trident Microsystems (TRID) is a company whose stock is trading substantially below its net-cash value. According to its latest SEC filing the company held nearly $212M in cash with $56M in total liabilities, for a net-cash value of $156M as of December 31, 2008. However, TRID’s market price is only $95M, nearly a 60% discount to its net cash.

TRID is a leader in integrated circuits for Digital Television. While its products are used in all kinds of displays, LCD television is its most important growth market as LCD televisions take share from plasma in the market for larger screens as well as traditional CRT television sets of all sizes. Additionally, TRID designs, develops, and markets integrated circuits (ICs) and associated software for digital media applications, such as digital television (digital TV) and digital set-top boxes (STB). The company also designs cross-platform software that allows multimedia applications to run on devices in the digital living room, including digital STBs and digital TV sets.

It wasn't uncommon for Ben Graham, the creator of value investing, to invest in stocks in which the liquid assets on the balance sheet (net of all debt) were worth more than the total market capitalization of the company (also known as "net nets" to Graham followers). This means that Graham was effectively buying businesses for nothing, and in some cases, for less than what the businesses would sell at auction.

For this article, we focus on what Ben Graham called “secondary stocks”. We define a secondary stock as one having no claim to fame, prominence, or general popularity. Hence, it is likely to be ignored by the stock market generally and left for dead when the disparity between price and intrinsic value may in fact be the greatest. There is no guarantee or law of market action by which the price can be counted upon to adjust itself eventually to its intrinsic value. Therefore, our focus is on companies with a catalyst in place. These are our picks:

Trident Microsystems Inc (NASDAQ:TRID) has filed its results for the quarter ended December 31, 2008. While its earnings and operating cash flow have now turned negative, its liquidation value remains almost unchanged. In our original post, we wrote that TRID is an undervalued net cash stock looking for a catalyst. We continue to think it’s a good candidate for an activist campaign for the following reasons:

1. It’s large for a net cash stock: At its $1.32 close yesterday, the company had a market capitalization of $83M. That puts it into the strike zone for funds with around $100M under management.
2. It’s deeply undervalued: We estimate its liquidation value is around $167M or $2.66 per share, which is more than 100% higher than its close yesterday.
3. Its value is predominantly cash: TRID is trading at half net cash value of approximately $155M or $2.48 per share.
4. Its stock is liquid enough: According to TRID’s Google Finance page, the average volume for the stock is more than 530,000 shares per day. Yesterday, it traded more than 427,000. With 63M shares on issue, an investor seeking ~5% of TRID needs a few more than 3M shares, which should be readily achievable in a reasonably short period of time.
5. Management holds a vanishingly small number of shares and are net sellers.

We confess that aside from the litigation and regulatory investigations into TRID’s granting of stock options, we can’t see a problem with TRID. Please leave a comment if you can see what we are missing.

Trident Microsystems, Inc. (TRID)

F2Q09 Earnings Call

Trident Microsystems Inc (TRID) is an undervalued net cash stock looking for a catalyst. We think it’s a good candidate for an activist campaign for a number of reasons:

1. It’s large for a net cash stock: At its $1.67 close yesterday, the company has a market capitalization of $103M. That puts it into the strike zone for funds with around $100M under management.
2. It’s deeply undervalued: We estimate its liquidation value is around $170M or $2.75 per share, which is 65% higher than its close yesterday.
3. Its value is predominantly cash: TRID is trading at two-thirds of its net cash value of approximately $155M or $2.50 per share.
4. Its stock is liquid enough: According to TRID’s Google Finance page, the average volume for the stock is more than 500,000 shares per day. It traded more than 350,000 yesterday. With 62M shares on issue, an investor seeking ~5% of TRID needs a little more than 3M shares, which should be readily achievable in a reasonably short period of time.

About TRID

The outlook for the chip sector keeps crumbling, and the Street keeps bringing down its numbers.

This morning, analysts at both Robert W. Baird and Needham issued highly negative reports on the outlook for the sector. In short, rather than seeing any signs that things might soon get better, or at least bottom, the two firms fear that conditions continue to erode, with no near-term end of the downward slide in sight.

Over on RealMoney yesterday, James Altucher pointed out that Trident Microsystems (TRID) can be had for less than half of its cash value.  He notes that the company, which trades at $1.50 per share:

...[I]s not particularly interesting, but: Trident is actually trading with a negative Enterprise Value of $135.92 million dollars. The company has $230 million dollars in cash ($3.763 per share), and zero debt; forget about the fact that the company has a stated book value of an additional $3.643 per share. The company has no meaningful expenses in its horizon, and given the massive amount of cash on the balance sheet, I simply do not see how Trident doesn’t move higher—at least in line with the cash on hand?

F1Q09 (Qtr End 9/30/08) Earnings Call

November 3, 2008 5:00 pm ET

Many companies are trading below cash in this market. The market values them at less than the cash balances that would be left over after paying off debt. 

The six stocks have market values between around $100M and $10B, market capitalizations less than two times their net cash and equivalents, and have boosted their net cash over four successive quarters.

One of our readers asked about my thoughts on Trident Microsystems (Nasdaq: TRID). Trident is an electronics company that designs and manufactures integrated circuits for different digital media products such as digital television and liquid crystal displays.

I have looked at several electronics companies in the past and I have to say, the profit margins have been razor thin. Trident seems to be made from the same stuff, as their operating earnings over the past 7 years do not paint tranquil picture. During the past 7 years, Trident has had 4 years of negative operating earnings and 3 years where they had positive operating earnings. Their average operating margins over the last 7 years are negative and imply that if this trend continues they will lose value for shareholders. With the majority of their revenues coming from just 2 customers, I would classify their business model as very risky.