Meet the Turnaround Story That Just Won't Start

A quick look at last night's third-quarter report from MIPS Technologies (Nasdaq: MIPS  ) would send many investors running for the exits:

  • Revenue fell 23.5% year-over-year to $15.3 million.
  • License holders of MIPS' processor architectures shipped 7.5% fewer chips.
  • Last year's $0.01 non-GAAP profit per share turned into a $0.01 loss.

Yet these stale numbers fell at the high end of management guidance, and they were enough to beat Wall Street's estimates.

Management seems excited that Google (Nasdaq: GOOG  ) is throwing its Android weight behind the MIPS platform. The next version of app development tools for Android includes a ton of MIPS code and -- for the first time -- makes it possible to write Android apps is native MIPS code. So far, that advantage has been exclusive to ARM Holdings (Nasdaq: ARMH  ) chips, which means that the most performance-hungry apps have been restricted to that architecture. Native code runs faster than the Java-style code that runs across a variety of chip architectures.

But it's a long, uphill battle. ARM has such a solid first-mover lead that even mighty Intel (Nasdaq: INTC  ) is having trouble making a mark on the Android market.

And the MIPS story never changes. There's always a big breakthrough just around the corner even as sales and profits run down the drain. I used to believe the big talk, but I'm running out of patience with the lack of concrete results.

The rumor mill would have it that the entire company is up for sale, which adds another twist to the story. (No, management won't confirm or deny the gossip.) Do you believe the buyout story and hold on for an acquisition premium? Or maybe you should sell right now to take advantage of the rumor-fueled pop?

I'm sitting on the fence. My bullish CAPScall on MIPS stays in place just a little while longer. But if the company can't show a solid catalyst or two before the next quarterly report, I'll probably remove that optimistic vote at a loss. There are just too many better, more believable growth stocks in this market to carry the torch for a turnaround that never comes.

Fool contributor Anders Bylund owns shares in Google but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Google and Intel. Motley Fool newsletter services have recommended buying shares of Google and Intel. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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