Despite the lousy environment for semiconductor stocks lately, a couple of semiconductor IPOs have been thrust out onto the market this month. I wrote about Techwell
The boom in flash memory has been a boon for Verigy. The number of megabits of flash memory shipped doubled every year from 2000 through 2005; this year, it's expected to triple. Unsurprisingly, Verigy's revenues have grown strongly. In the quarter ended April 30, 2006, they totaled $192 million -- up 92% from $100 million in the prior year. Orders grew even more dramatically, with new orders reaching $313 million, more than tripling the year-ago $95 million.
Verigy still hasn't turned a profit, but it's almost there. If it weren't for separation costs associated with the spinoff from Agilent, the company would have recorded a small profit during the April quarter.
Given the strong growth in orders and sales in the first part of this year, why are the shares are languishing close to the IPO price of $15 -- a price that was lower than the hoped-for range of $16-$18? I can think of two reasons, and the first relates to weakness in the NAND flash memory market. NAND flash prices have fallen precipitously this year, and some people expect that the rate of NAND flash capacity expansion will have to be drastically curtailed. (Note that this isn't a universal opinion). If so, Verigy would certainly experience headwinds.
The second issue pertains to Agilent's plans to distribute its remaining 85% stake in Verigy to shareholders by the end of October. It's not too hard to imagine what will happen when five-and-a-half times as many shares are suddenly available to the public -- investors will surely sell many of them.
Verigy may be a company worth following, but I will leave it to you to decide whether the potential rewards favorably balance its current risks. If you're seeking a comparison, its publicly traded competitors include Teradyne
If the memory market defies the skeptics, and Microsoft's
Test out further Foolishness:
- NAND Flash Hits Bottom, Maybe
- Techwell Didn't Do So Well
- Solectron: Slow Progress Is Still Progress
- How to Crush the Market
Fool contributor Dan Bloom has no financial interest in any company mentioned in this article. He welcomes your comments.
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