SiRF Is Scrambled
By
Anders Bylund
February 5, 2008
|
Eggs are fragile little things. That's why we don't put too many of them in one basket.
That's a lesson that SiRF Technology Holdings (Nasdaq: SIRF) is learning the hard way right now. The company just reported slightly disappointing revenues but hardly any fourth-quarter profit at all, and management blamed the underperformance on some very localized events. And the shares cracked like a soft-boiled egg, spilling half their value onto the sidewalk overnight. Ouch.
SiRF makes chips and software to enable GPS navigation in cars and handheld gadgets. A couple of customers reduced their orders late in the quarter, and the important Korean market suffered shortages of a size of LCD screens that no other country digs.
Combined with higher demand for low-margin all-in-one chip solutions and fewer fans of the more profitable single-function chips, gross margins took a year-over-year plunge; 6.6 percentage points lower, they landed on 48.1%, and management doesn't expect more than a couple of points' worth of recovery as far as it can see.
So it was a rotten egg of a report, and the company would be wise to dilute its highly concentrated customer base a bit. But did SiRF deserve going 20% below its previous all-time low stock price for those transgressions? Seven analysts who downgraded the company think so, so they probably don't see any value discount in the new, lower price.
The competition in this attractive market is predictably severe, with big boys like Texas Instruments (NYSE: TXN), Sony (NYSE: SNE), and Qualcomm (Nasdaq: QCOM) muscling in on SiRF's territory. But Sony still buys chips from SiRF, even though it makes both chips and integrated GPS modules of its own. That tells you something about product differentiation and engineering mind-share, and it's one reason why I don't think the company is toast.
Management still likes its position, and massive brands like Research In Motion (Nasdaq: RIMM), Sony, Motorola (NYSE: MOT), and General Motors' (NYSE: GM) OnStar keep launching new products built around SiRF chips and software.
At these prices, SiRF looks like a tasty omelet. I'm getting hungry.
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