Highly diversified power semiconductors
IXYS Corporation (IXYS.O) is a power semiconductor supplier that has added higher-margin ICs and MCUs to its mix over the last couple of years. The company is highly diversified by product, location, technology, manufacturing strategy and customers, including applications and regions. It is growing and profitable.
Q3 customer and market diversification
Revenue grew sequentially by 4% to a two-year high of $89.3m, gross margin was 28.9%, and the company was profitable on a pro forma basis for the 17th straight quarter. Cash from operations was $5.7m, cash and equivalents grew to $99.1m, and it paid a dividend of $0.03 per share for the fifth consecutive quarter. Power semiconductors were seasonally soft at 69% of sales, MCUs and ICs grew to 35%, and RF and systems were 6%. North America and EMEA softened to 26% of sales each, while Asia/ROW grew to 48%. Its 3,500 customers were split by market as: industrial (a varied mix within itself) down to 40%; consumer up to 23%; and the balance relatively unchanged including communications at 14%, medical at 9%, transportation at 4% and others at 10%.
Diversified products, operations and technologies
IXYS reports revenue across three different product lines, but consists of 11 autonomous businesses that include four wafer fabs. Operations exist in multiple locales in California and Massachusetts, as well as Colorado, Germany, Korea, the UK and Switzerland. Technologies include MOS, bipolar, SOI, DCB, IGBT and ICs.
MCU and IC acquisitions improve margins
IXYS has expanded its offering to ICs and MCUs with a fabless manufacturing model to provide its customers with a more comprehensive offering, resulting in a richer mix of consumer applications to Asia, as well as accelerated revenue growth and improving margins. Last July it acquired the 4- and 8-bit MCU products from Samsung; in 2010 it bought MCU supplier Zilog; and in 2009 it acquired LED display driver assets from Leadis.
Valuation: Attractive with earnings leverage
IXYS currently trades at 0.9x sales and 12.8x earnings based on forward-looking FY15 estimates. Its semiconductor peers trade at 1.5x sales and 15.0x earnings, and we believe that if the shares grow into its peer price/sales valuation that earnings leverage could be a catalyst for additional potential upside.
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