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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, July 26, 2006

Is the SiRF Reaction Too Harsh?

Stock Tickers: SIRF, TRMB, GRMN

Should SiRF Technology (SIRF) be down 23% at under $20 today?

The company beat earnings last nite posting non-GAAP EPS at $0.20 and revenues at $57.2 million; but the net income was only clocked in at $0.03, a decline from the period they year before. Wall Street was expecting $0.19 and $57.3 million. If you look at the exceptions you may realize why NET was lower:

-excludes $1.4 million in amortization of acquisition-related intangibles,

-excludes $6.9 million in employee stock compensation expense,

-excludes $1.1 million of expenses related to acquisition-related contingent payments.

Weighted average shares outstanding used in computing diluted non-GAAP net income per share for the second quarter of fiscal 2006 were 56.0 million, compared with 52.0 million for the second quarter of fiscal 2005. The company made a small acquisition and the employees have sold shares.

Revenues grew 61% year-over-year. This rate may not continue, but you would think the street is smart enough to plan for the possibility that certain growth rates aren't reasonable forever. Gross margins were 56.3%. The below-consensus guidance was not showing the barn burning percentage growth investors have seen in the last 18 months, and that appears to be the culprit.

Credit Suisse led the disappointed crowd and exacerbated the impact by cutting their price target from $35 down to $20, right around the current price. Jefferies also took their target down, but said this is a good entry point and Cowen maintained their Outperform rating.

SIRF is now down over 50% from the 52-week highs and trades under 30 times forward earnings. The company makes GPS chips and has major contracts with many cell phone and GPS product providers. The street should also not punish SIRF for insider selling as the company had to delay an IPO for 4 years because of the bubble popping in 2000 and 2001, and the employees had essentially been underpaid for 4 years as a result of not having access to cashing in like at other companies in the late 90's and early 2000's.

This 23.9% drop to $19.52 may be the price a company has to pay when they miss any projections, but this sure seems extreme. SIRF has now lost over 50% from its 52-week highs. If they are going to treat SIRF in this manner you better pay attention and be careful about the other GPS providers.

So far Trimble Navigation (TRMB) managed to dodge the bullet after its earnings. TRMB is up 9.3% at $47.00.

Shares of Garmin Ltd. (GRMN) are down 1.4% at $98.98.

Jon C. Ogg
July 26, 2006

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