Keithley Instruments, Inc. (KEI)

Amid a sojourn counting 60 years, Keithley Instruments (KEI) has provided test equipment solutions ranging from direct current (DC) to radio frequency (RF) measurement tools for a diverse customer base that includes semiconductor, cellular, optoelectronic, nanotech, and general research customers. With product offering over 500, its operations are spread over 80 countries, with principal markets being United States, Europe and Asia.

The semiconductor and precision electronics segments of Keithley’s business, which typically account for 80% of total sales, are bit cyclical in nature and is witnessing a slowdown for quite sometime. Endorsing the same, orders in 4Q’06 represented a 14% sequential decline and a decrease of 8% y-o-y. Going forward, enhanced competition from Agilent Technologies and others, are expected to limit the KEI’s growth.

Adding to the woes is the rising input costs, which remains a cause of concern for companies in the industry in the next few quarters. Its restructuring initiative at Ohio manufacturing facility, could lead to additional costs in the near future, thus having a negative impact on gross margin, as the implementation will only be resourceful not before 2008.

The company is expected to perform well, but not immediately. With tough competition and technological innovations being anticipated in coming two years, a steady decline in order book is well anticipated. With price-earning multiple well above the industry’s average and operating margins not in the line with the peer group, its wiser for an investor to adopt a wait and watch strategy.