Pericom Semiconductor Corp.: Riding the coattails of growth
Pericom Semiconductor Corp. (Nasdaq: PSEM)
San Jose, CA
http://www.pericom.com
52-week low / high: $9.42/$19.50
Shares Outstanding: 25.92 million
Market Capitalization: $405.39 million
Successfully sousing itself in the semiconductor business has been a snap for Pericom Semiconductor Corp. (Nasdaq: PSEM).
The small cap makes integrated circuits and frequency control products that are used in everything from digital video for PCs to mobile devices that include cellular, GPS, digital media players, servers and PCs. It is the only manufacturer that addresses the computer expansion card market application need with multiple product functions.
The key to this company, however, is the strength found in its end market and customers. Pericom targets high-growth markets, serving communications, computer and consumer markets. Its top five end customers include Cisco Systems, Inc. (Nasdaq: CSCO), Dell Inc. (Nasdaq: DELL), Hewlett-Packard Company (NYSE: HPQ), Samsung and Garmin Ltd. (Nasdaq: GRMN).
The market for which Pericom sells into appears robust. Texas Instruments Incorporated (NYSE: TXN) and LG Electronics recently disclosed reports evidencing strength within the handset market. Laptop sales have been strong at HP and Dell. Additionally, if notebooks sales take off, that could also create sales growth opportunities for Pericom.
Growth appears to remain inherent in the GPS space as well. Prices of GPS equipment are declining and one of Pericom’s key customers in the space, Garmin, is a leader in GPS products, which could create growth opportunity for Pericom. Pericom expects the market to grow at a compounded annual growth rate of 20% to 25% over the next few years.
Want proof the company has already begun etching a footprint of success? The company’s most recent quarter was downright stellar. Net income for the first quarter grew a whopping 139% to $3.9 million, or $0.15 per share, compared with net income of $1.6 million, or $0.06 per diluted share, in first quarter of 2006. Revenues rose 25% to $38.5 million from $30.8 million reported in the same period last year. Gross margin was 36.4%, up from 33.8% in September of 2006.
For fiscal 2006, revenues grew 16.5% for the year ended June 2007, while net income bolted 44.3%.
While there is much growth potential, investors should be aware that Pericom sells to segments that are cyclical. Should the economy dive, so could Pericom’s end market and therefore business. As of now, though, things look A-OK.
For the current year, ending June 2008, four analysts surveyed by Thomson Financial are on average projecting revenue growth of 28.7%. Four analysts have a median call of $18.50 on the stock.
Note: Pericom Semiconductor Corp. (Nasdaq: PSEM) is on the “Watch List” of Rising Star Stocks, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, Pericom displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Rising Star Stocks portfolio at a later date.
