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Data I/O Will Emerge Stronger From The Downcycle

May 06, 2020 10:03 AM ETData I/O Corporation (DAIO)EDU11 Comments


  • The company has faced headwinds for a couple of years that are prolonged due to the COVID-19 pandemic impact.
  • But underneath, there are still secular tailwinds blazing with ever more electronics going into ever more stuff.
  • And the strength of the company's products and balance sheet, it is likely to emerge from the headwinds in a stronger position.

Our investment thesis for Data I/O (DAIO) is fairly simple:

  • It is the market and technology leader in the provisioning industry.
  • Before the pandemic, there were signs that the industry had begun a new up-cycle.
  • However, the pandemic is wreaking havoc in the industry, but given Data I/O's leadership position and iron-clad balance sheet, nearly half of the market capitalization is cash, and the company has no debt.

As we reported a while ago, before the outbreak of COVID-19, there were signs that the industry was embarking on a new cycle of CapEx spending after what has been a bit of a slump since 2018.

The COVID-19 pandemic is interrupting this, and to what extent remains to be seen. However, this results in a somewhat adapted investment thesis.

While the recovery might very well take longer, the company is financially sound enough to weather the storm while competitors might not. It's similar to our investment thesis we just recently published for New Oriental Education (EDU). Like New Oriental, Data I/O is likely to gain market share in the slump and emerge stronger when things get back to anything approaching normal.

We have been long-term holders of Data I/O even if we mistimed the purchases on the downturn pretty badly on the assumption that the downturn wouldn't be as severe as previous ones, the company was in much better shape financially and SentriX, their new secure provisioning device for the IoT market would fill the gap.

While these assumptions seemed pretty reasonable at the time, the shares nevertheless succumbed on a downturn which turned out to be as bad as the 2012-2013 one, although company financials are indeed in much better shape.

The major disappointment revolved around the SentriX, the market adoption has been much slower than expected, and the company has

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This article was written by

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Finding the next Roku while navigating the high-risk, high reward landscape

I'm a retired academic with three decades of experience in the financial markets.

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Finding the next Roku while navigating the high-risk, high reward landscape.

Looking to find small companies with multi-bagger potential whilst mitigating the risks through a portfolio approach.

Analyst’s Disclosure: I am/we are long DAIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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