Semiconductor company Integrated Device Technology (NASDAQ:IDTI) is on a terrific run in 2014. The stock has beaten the market handsomely in 2014, appreciating more than 60% so far, as its financial performance has improved at a consistent pace. In fact, when Integrated Device reported its first quarter results back in July, its non-GAAP net income more than doubled year-over-year to $26.7 million from $10.6 million in the prior year period.
In addition, the company offered a strong outlook, supported by combined strength across all three of its target market segments - communications infrastructure, advanced power management including wireless charging products, and high performance computing.
New products and innovations will enhance growth
Integrated supplies semiconductors for three key markets that are expected to grow at a good pace going forward, and the company's latest results indicate that it is gaining good traction in its end markets.
For example, in communications infrastructure, demand for its advanced timing products, RapidIO switches, and the newer RF products for wireless base stations drove results. The buying patterns of the company's communications infrastructure customers are healthy, driven by demand for its focused product areas - advanced timing and RF.
Integrated Device Technology is improving its position in RapidIO switches by collaborating with eSilicon of San Jose, which is expected to accelerate the development of its future sRIO generations. The enhancement in RapidIO switches will allow it to incorporate customer requirements for futuristic designs based on sRIO. Integrated Device also expects to enhance its addressable opportunity by winning over market share from conventional ASIC programs, and by applying sRIO technology to non-conventional applications.
Meanwhile, the timing business, which is primarily supported by communications infrastructure, is also tracking ahead nicely. The company is gaining from several new products going into the production phase, like its new 1.5 Volt PCI Express, third generation UFT and the newly introduced VersaClock 5. New applications like enterprise routers, wireless infrastructure, network access points and many other products that utilize internet connections for serving real-time services are increasingly using adapted products.
DDR4 and wireless charging are catalysts to consider
On the other hand, Integrated Device is transitioning its memory products from DDR3 to DDR4. It has already crossed the one million unit mark for DDR4 shipments, which includes LRDIMM components. Looking ahead, this number should continue improving as adoption of DDR4 is expected to increase at a good pace. According to DRAMeXchange:
First tier DRAM manufacturers are expected to begin mass producing DDR4 in 2014, but will only apply the component to Server DRAM in the initial stages. The product is expected to be introduced to the PC market in the later periods, and may replace DDR3 as the market mainstream in 2015.
Hence, Integrated Device's prospects in the DDR4 market look optimistic as the technology is adopted in PCs.
Integrated Devices' wireless power business also is gaining considerable footing at important customers and products, as the company is landing more design wins.
For example, LG Electronics is employing an advanced IDT wireless receiver in its highly successful and popular new G3 smartphone. This can be considered as a key development for IDT, with a key manufacturer utilizing embedded wireless charging into a flagship smartphone for the first time. Integrated Device is integrating the wireless charging subsystem on to the phone's motherboard by closely working with LG, and thus eliminating the need for carrying a charging case or accessory.
This design win is enhancing consumer awareness about wireless charging technology, and the company expects that more equipment manufacturers will adopt this technology going forward.
Moreover, Integrated Device is accelerating the launch of the new products, and recently introduced its wireless charging receiver for extremely small form factors that is particularly built and optimized for wearable applications. This is another smart move as the market for wearable devices is still in its nascent stage and is expected to improve at a good pace in the future. According to IDTechEx, the size of the market will grow from $14 billion this year to more than $70 billion in 2024.
A look at the valuation
So, Integrated Device seems to have strong prospects, and a look at the company's valuation and growth expectations will give investors more reasons to invest in the company. It has a trailing P/E ratio of 28, while the forward P/E is lower at 20, which points toward earnings growth. In addition, a PEG ratio of 0.52, below 1, further indicates that the company is undervalued. Next, Integrated Device does not have any debt, and its cash position is strong at $464 million.
Finally, the company's earnings are estimated to increase at a CAGR of 43.5% for the next five years, which is evidence of its potential. All in all, Integrated Device looks well-placed to deliver growth in the long run, and investors would do well to consider this stock for their portfolios.
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