After semiconductor chips are manufactured, they have to be tested before they get shipped out for use in your new Apple iGadget. More and more, chipmakers appear to be turning to a small company called Verigy (NASDAQ:VRGY) for their test equipment. After Verigy reported better-than-expected results for its fourth quarter and fiscal 2007, its stock has increased more than 20%.
Verigy turned in a good quarter, although you need to put a mental asterisk next to its year-over-year net income growth rate of more than 100%. Last year's results were hindered by $13 million in separation costs associated with its spinoff from Agilent (NYSE:A). Comparing apples to apples shows that the net income (non-GAAP) grew by a much lower 13% over last year while revenue ticked up by 3.5% to $209 million. Still, given that Verigy's industry has experienced a slowdown this year, that rate of growth is pretty good. Verigy is weathering the storm better than competitor Teradyne (NYSE:TER) is.
Though I don't know whether the revenue uptick that Verigy experienced this quarter is sustainable, especially considering that orders fell by 12% sequentially in Q4, I do know which business of the two -- Verigy or Teradyne -- I would rather own while waiting for the upturn.
The table below shows the revenue trend for both companies over the past three quarters and for the same period in the previous year. Both companies' revenues have fallen this year, but the downturn has hit Teradyne a lot harder than it has Verigy. Teradyne's revenues have tanked by 23%, while Verigy's have nudged down only slightly.
| Company |
2007 |
2006 |
Change |
|---|---|---|---|
|
Verigy |
$596 |
$608 |
(1.9%) |
|
Teradyne |
$842 |
$1,098 |
(23%) |
Still, if you're interested in Verigy, you need to do some homework before putting your money at risk. The semiconductor test equipment biz is really volatile, and during Verigy's third quarter, one company, ChipMOS Technologies (NASDAQ:IMOS), accounted for almost a third of revenue. I don't expect that this kind of revenue concentration will reduce volatility.
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