Silicon Image (Nasdaq: SIMG) is taking a break.
Sales growth stalled out at $85.3 million this quarter, compared to $86.3 million in the previous period and $87 million a year ago. But even that dull picture is too rosy.
Silicon Image used to defer sales that happened in the last month of every quarter into the following quarter, because the distribution channels simply weren't sophisticated enough to let the company count its chickens. They just figured out how to fix that delay, so this quarter includes $6.7 million of current December revenues that would not have made it in previous years. So on an apples-to-apples basis, sales are actually shrinking here.
You'd think that this company would be on top of the world these days. Silicon Image is a self-described market leader in designing controller chips for digital storage and secure audiovisual data transmission. With the exploding demand for storage and high-definition entertainment, these guys should be swimming in cash. It doesn't matter who built your cable box and that 52-inch TV -- Sony (NYSE: SNE), Philips (NYSE: PHG), Hitachi (NYSE: HIT) and all the rest are likely to use Silicon Image's transmission interfaces. At the very least, these companies have to pay a smidgen of license royalties for the right to have an HDMI or DVI plug at all.
It's not quite working out that way, though. Management says that 2008 will be a "transitional year" as Silicon Image launches a 5-pin standard for hooking up mobile devices to high-def screens, and some home-entertainment networking products, that will start selling in volume next year. It looks like they just kicked off the "transitional" part of the year a bit early.
I do like this company in the long term, though. It's a cash-rich, debt-free innovator with a promising pipeline in a very hot technology niche. And its stock is trading near five-and-a-half-year lows, some 60% below the year-ago price. Giving Silicon Image credit for its strong balance sheet, you could look at a TEV/EBIT ratio just above 3 today and compare that to recent history in the lower 20s. Or you could compare it to competitors; Analog Devices (NYSE: ADI) is valued at 12 times operating earnings and Broadcom (Nasdaq: BRCM) has a ratio of around 86.
If Silicon Image's plans work out just a little bit, it's way too cheap right now.
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