After getting beaten up over the past two months, shares of GPS chipset maker SiRFTechnology
SiRF sells chipsets and related software to provide GPS functionality in automobiles, mobile phones, and other electronic devices. The company features an A-list of customers, including GPS makers Garmin
SiRF protects its technology with numerous patents, and licenses its technology to other companies. Those licensing fees accounted for about 5% of total revenues of $57 million in the latest quarter. While the competition can't be ignored, gross margins are strong at around 55%, and revenues have been booming. Sales grew 40% from 2004 to 2005, reaching $165 million -- and in the first six months of this year, sales have totaled $110 million.
Despite all of its past success, SiRF is not standing still. It continues to develop its technology and has made a number of small acquisitions to help with its endeavors. Late this year, it should see sales ramp up on a chipset called SiRFLink, which combines GPS and functionality for Bluetooth, a wireless specification that allows for communication between devices such as PDAs and mobile phones.
Clearly, though, there must be some holes in the SiRF story, because 16% of the float is sold short. One negative is that accounts receivable have taken an alarming leap over the past two quarters, standing at more than $25 million at the end of June, compared with less than $12 million six months earlier. Is SiRF extending overly favorable terms to customers to get its chips out the door? Another risk factor is that sales are concentrated at a small number of customers -- and one customer accounted for a full 42% of revenues during the first quarter of this year.
Nevertheless, the stock may be worth a look at its current price of around $19 per share -- down from more than $40 earlier this year. While the automotive GPS market is well established, the market for GPS in mobile phones and PDAs has a lot of growth ahead. For investors who can tolerate some risk, the end market growth -- combined with SiRF's competitive position -- may make for a winning investment.
Fool contributor Dan Bloom doesn't own shares of any company mentioned in this column. He welcomes your comments.