For investors who thought avoiding the fabrication end of semiconductors was the low-risk investment solution, Standard Microsystems (NASDAQ:SMSC) reminds them that business risk is everywhere.

Standard surprised investors with a third-quarter report that was, in a word, shocking. Quarterly sales fell 30% from the year-ago quarter. Product sales, which, as opposed to intellectual property revenues, are the main part of total sales, fell 8%. The company said revenue suffered primarily because of "accounts receivable collectibility concerns with a Taiwan-based distributor that have just become apparent." Cut through the fog and the company has a customer that isn't paying its bills to the tune of $4.2 million, not pocket change for a company that tends to do about $50 million in business each quarter.

Also not pretty was a sharp drop in gross profit margins -- to 45.9% from 58.3% -- and a fall in net income to $600,000 from $14.8 million. As ugly as those numbers are, the company's stock is only down 17% on the news. Buoying the shares is the company's $180.9 million in cash and short-term investments ($9.34 per share) and no debt.

Next quarter isn't going to smell like a rose either. Analysts were expecting the company to earn $0.12 a share this quarter and $0.08 next quarter. The company is aiming for $0.03 to $0.07 a share next quarter. If it earns $0.07, the stock is currently priced at 60 times fiscal-year earnings. Yikes!

For a not-so-direct comparison, cash-rich Intel (NASDAQ:INTC) sells for 19 times trailing earnings, and competitor National Semiconductor (NYSE:NSM), which is also cash-rich, sells for 17 times earnings.

Analysts had expected Standard Microsystems to post $0.40 in EPS for fiscal 2005 and earn $0.68 a share in fiscal 2006. After the stock's 17% drop, it's trading at 46 times the 2005 figure. The estimated 18% annual earnings growth over the next five years is nice, but the stock still looks a bit rich for my blood.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.

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