Today, we look at another entry in my Diary of Missed Opportunities -- specifically, SirenzaMicrodevices (NASDAQ:SMDI), a very small tech company focused on various radio frequency (RF) components for wireless applications. How bad of a missed opportunity was this one? Well, I had it on my watch list from about $3 a share . and I watched it go up, up, and up.
It may not yet be too late, though, if the fourth quarter is any indication. Revenue climbed by 29%, and pro forma earnings per share doubled. Although gross margins eased a bit from last year's level, that was primarily a product-mix issue. Last and by no means least, inventory and accounts receivable seem to be in good order.
What originally attracted me to the Sirenza story is also the culprit in the gross-margin decline. Sirenza supplies antennae for some Sirius (NASDAQ:SIRI) devices -- specifically, the popular Sportster and S50. Strong Sirius sales were a big part of the overall revenue picture this quarter, but these products carry lower margins than do some of the company's products in the wireless-communications market.
Potential is the name of the game here, both boon and bane. Sirenza's relationships with large Chinese companies ZTE and Huawei bode well for China's 3G rollout, but that could take longer than expected. Ditto with WiMAX, 3G, and RFID projects in the United States. Sirenza has a lot of the right customer relationships -- it deals significantly with Motorola (NYSE:MOT), Nokia (NYSE:NOK), Ericsson (NASDAQ:ERICY), Nortel (NYSE:NT), and Siemens (NYSE:SI). But we all know what competition and delays can mean in the telecom-equipment world.
Attempting to value a stock like Sirenza is no picnic. Starry-eyed fanatics are going to call Sirenza the next Broadcom and would have you believe that no price is too high for the stock today. Curmudgeons are going to look at it as just another future flameout. For my part, I'm a believer in the company, but I'm going to wait for a swoon in the stock before buying. Because as any long-time tech investor can tell you, no matter how good the company, there will be a dip again sooner or later.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
