Actions Semiconductor Co., Ltd. (ADR) (NASDAQ:ACTS)

CAPS Rating: 1 out of 5

The Company is a fabless semiconductor company that designs, develops and markets integrated platform solutions, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable media players.

Recs

9
Player Avatar SOXTrader (< 20) Submitted: 2/22/2007 10:38:45 AM : Underperform Start Price: $7.54 ACTS Score: +125.56

I'm going to under perform this because this stock has a number of risk factors that aren't being discussed:

1) Every dime that this company has made is based on technology stolen from SGTL. This isn't a baseless claim - SGTL successfully sued ACTS for infringement of a patent on core power supply technology needed to compete in this market. As a result, ACTS' products are barred from being sold in the USA. They are available in other countries where US patent law doesn't apply.

2) ACTS will need to enter the US market to achieve the target growth rate. They claim to have designed around the patents. But, at the same time, they previously claimed to not infringe and are suing to try to have the same patents invalidated, so clearly they don't have a high level of confidence in their work around.

3) SGTL has not sued for actual damages for the infringement, so there is a risk of a significant negative cash flow situation.

4) The competition for low end MP3 chips is heating up. ACTS currently enjoys 55 % margins, but that won't last when ALI, Sunplus and RealTek start selling even cheaper chips at 30% margins (ACTS margins will drop to

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Member Avatar metoo105 (28.73) Submitted: 2/23/2007 5:34:24 PM
Recs: 0

So what's your take on SGTL. You are mums the word 'cept the outperform.

Both calls seems uncertain to me, even if everything you write is true, since 1. it's not clear that SGTL will ever get paid or if they'll be able to transition to something else before going through too much burn, and 2. ACTS, even if they are IP pirates, don't necessarily need the US market, may be "too large" or perhaps "strategic" to fail. Think of Japan's relationship to US IP in the 1970s and 80s. 't seems to me to be just the same, but I don't much here and am largely guessing at an outcome.

Also wouldn't the $80M budget that that ACTS has burning a hole in its pocket be plenty to scoop up SGTL??

Seems to me like a no brainer on their part!

Member Avatar SOXTrader (< 20) Submitted: 3/1/2007 10:26:27 AM
Recs: 0

My outperform on SGTL is based on a value play. I don't see any evidence that the company's core leadership change will result in a significantly better outcome. However, the company is sitting on a gold mine of technology and talent that could be leveraged to generate real value - if the assets were properly utilized. My belief is that SGTL will get picked up by someone who is already in or wants to get into the app processor space - NXP, FSL, TXN, BRCM, etc. The assets are going to be a lot more valuable being leveraged into a wider range of markets than they will be for ACTS, who will remain MP3-only. IMO, the sale price will be around $5-$7 per share. ACTS $80M "ear chest" isn't going to pick SGTL up and, even if it were, they'd just get an empty shell. I don't work there, but it's hard to imagine that the employees would stick around to help the "IP Pirates." Austin has a great economy with lots of high tech job opportunities.

In summary - it's all relative. ACTS is riding fairly high right now but is in for some stormy weather and has no real intrinsic value beyond the current ability to generate cash. SGTL is beaten down and may never recover as an independent entity - but it's is cheap enough to enjoy a 50-100% price increase even in a fire sale. The estimated buyout price net cash and inventory is only ~$70M-$100M. That buys a lot of value-differentiated IP, a mostly-intact employee base that could be split into 3-4 separate businesses, and estimated 2007 revenue of $100M. 2008 revenue is likely to be lower, but the idea would be to re-target expenses to other opportunities.

Member Avatar metoo105 (28.73) Submitted: 6/21/2007 12:03:49 PM
Recs: 0

As part of today's press release:
"SigmaTel decided that it is in the Company's best interest to compete with Actions in the marketplace rather than in a court room," said Phil Pompa, chief executive of SigmaTel."

So the issue is now settled for the moment and the vulturous future lawyer's fees have been priced back into the shares of both. But . . . how long will this truce last?

And what exactly is the "gold mine in technology and talent" that you refer to above? So cryptic and so intriguing.

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