On Wednesday night, it's time for a second-quarter earnings report from semiconductor and LCD testing expert ChipMOS Technologies (NASDAQ:IMOS). So this Fool brushed up on his Min Nan and Mandarin to get you acquainted with this explosive growth story.

What analysts say:

  • Buy, sell, or waffle? Five analysts follow this stock, according to Reuters Estimates, and they have all slapped a buy rating on it. A 98% approval rating among 250 Motley Fool CAPS users has helped ChipMOS to a four-star rating in our market database.
  • Revenues. The company has already reported the sales figures for the second quarter, so the analyst opinion is sort of moot. It was a $177.5 million performance, 22% above the year-ago period.
  • Earnings. The average estimate says $0.14 per share, down from $0.15 per share last year.

What management says:
This is a tight-lipped business, not unusual for a Taiwanese operation by any means, but still annoying.

What management does:
This is quite a healthy business, particularly considering the sector in which it operates. Rivals like STATS ChipPAC (NASDAQ:STTS) and Amkor Technology (NASDAQ:AMKR) can't match any of these margins, nor the revenue growth rate. They do put up a spirited fight in the earnings-growth department, though. ASE Test (NASDAQ:ASTSF) swings entirely the other way around, with fatter margins and negative growth. ChipMOS has landed a nice balance between growth and efficiency that lets it compete effectively against these larger alternatives.

Margins

12/2005

3/2006

6/2006

9/2006

12/2006

3/2007

Gross

26.5%

28.6%

29.6%

30.2%

30%

29%

Operating

16.4%

19.7%

20.7%

21.7%

23.5%

22.4%

Net

6.1%

8.4%

9.3%

10%

10.4%

9.1%

Y-O-Y Growth

12/2005

3/2006

6/2006

9/2006

12/2006

3/2007

Revenue

1.2%

6.3%

17.3%

28.3%

33.9%

33.8%

Earnings

(44.6%)

3.3%

114.5%

235%

128.2%

46.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As semiconductor designers move toward either a fabless manufacturing strategy, or at least an asset-light one a la Texas Instruments (NYSE:TXN), they also tend to outsource their chip-packaging and -testing functions to ChipMOS and its many rivals. That's why revenue growth is so ubiquitous in this sector, and one of the reasons why our CAPS community loves STATS and ChipMOS.

Another good reason to like this stock is the dirt cheap valuation. Since reporting those sales numbers in mid-July, a couple of million lower than the then-current analyst expectations, the stock price tanked to the tune of 15% over the course of a few weeks. It was helped along the way by a major stakeholder and former top customer unloading its holdings in the company.

The end result is a rock-bottom P/E ratio of 9.9 times trailing earnings, and a ridiculously slim price-to-earnings-to-growth ratio. ChipMOS does carry a bit of debt on its books, but its operating income can cover the interest payments about seven times over. Operating cash flow is strong, but free flow is negative, because ChipMOS keeps reinvesting its cash into upgraded and new equipment. That's fine by me, though.

So what we have here is a known sales result, a somewhat disappointed but largely indifferent Wall Street contingent, and a severely depressed share price. Unless net margins suddenly took a steel bath -- and I don't see why they would -- shareholders should be in for a nice surprise this time.

Fool on:

Fool contributor Anders Bylund is an AMD shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.