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November 2008 O2Micro International Ltd. (OIIM)

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November 01, 2008 – Comments (1) | RELATED TICKERS: OIIM

O2Micro International Limited, a fabless semiconductor company, together with its subsidiaries, designs, develops, and markets analog, digital, and mixed-signal integrated circuits, and semiconductor devices for power management, mobile, and security applications, as well as provides systems security solutions in consumer electronics, computer, industrial, and communications markets. The company develops intelligent security software solutions, and silicon products and other engineered multi-layered structures for integrated circuits; and provides semiconductor assembly and testing services. Its products include intelligent lighting, battery management, power management, SmartCardBus, and security products, such as VPN/firewall system solutions. O2Micro International also licenses its intellectual property to third parties. Its products are used in liquid crystal display (LCD) notebook computer panels, LCD televisions, LCD monitors, and LCD panels for global positioning systems.

Comments: Long-term demand for LCD will probably trend down and die a long, hideous death, but that will take time. In the meantime this company appears to be way too cheap (hey, I could pick just about any stock this month and do OK in the next year!). Revenues have steadily increased for ten years, they're profitable, margins are excellent, gross margins are a whopping 58%, tons of cash, no debt, good insider ownership. No matter how you look at it this company looks too cheap. As Bill Mann recently wrote on the HG Philosophy board, "Your neutral position should be to assume that the market has it right, not wrong." That's good advice, but perhaps the market has discounted OIIM too much due to short-term fears of depressed demand for all things consumer tech. OIIM bottomed a few days ago and is up 50% in just three short days. Volatility will still reign for quite some time, but I think OIIM will recover nicely as the market comes to its senses.

1 Comments – Post Your Own

#1) On March 31, 2009 at 1:50 PM, monty050 (< 20) wrote:

The long term drivers of O2 Micro will be the switch to LED backlighting and battery charging. Notice that Apple is a thought leader in virtually every product line they participate in and their entire Apple Macbook Air (the ultra thin laptops) line use LED backlighting and furthermore use OIIM chips to control those LED's. In 2009 I believe all their laptops will use LED backlighting, and OIIM currently has all those design wins as well. Dell has announced that they will follow suit http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/2008/2008_09_24_rr_000?c=us&l=en&s=corp and Gartner predicts that by the end of 2009 20% of all laptops will use LED backlighting. The benefits of their lower power consumption leading to extended battery life are key as well as being mercury-free. Again, as OIIM is the leader in this technology they stand to benefit the most from this shift. I would say this company's biggest risk (selling barely above net cash of 2.84 per share) is that a larger player just acquires them. If you have been to Home Depot and seen their new line of Ryobi and Makita tools that use Lithium Ion batteries - these all use OIIM chips for battery management. The batteries last twice as long, have more power, charge in 1/2 the time and are lighter weight than the previous tools. The older batteries are all being phased out, and the new batteries are backwards compatible with the millions of tools currently making up the installed base. As the older batteries wear out, you should see sales of these new Lithium ion batteries accelerate.......and OIIM sells a chip in every single battery.

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