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June 02, 2001 at 08:00 PM
Vishay Intertechnology (VSH) makes and markets electronic components. Unlike most firms attracting attention in this field, Vishay concentrates on passive components (parts like resistors, which have no semiconductors or amplification), and discrete semiconductors.
These are relatively stodgy, low-tech devices, but they are crucial parts in the growing market for modern electronic equipment. (As are, for example, the low-voltage DC power supplies found in all computers and electronic equipment.) Many of these are discrete components.
And just what is a “discrete” component? Simply put, it’s a simple device, such as a single transistor, usually with two or three wire leads, as opposed to an integrated circuit (IC), which may contain many such devices in tiny form and many connectors. Discrete semiconductors can generally carry more power because they are larger, while tiny IC devices generally work with just enough electricity to allow certain information to be carried. Discrete components are commonly found in power supplies, analog (especially audio) circuits, radio amplifiers (e.g., in cell phones) and other communications devices. They’re meant for just about any application whose production volumes are too small to justify an IC design.
Far from a flash in the pan, Vishay, based in Malvern, Pennsylvania, was founded in 1962 by Dr. Felix Zandman. Now 72, he stepped down as president of the company in 1998 (nice timing!), but he’s still chairman and CEO. Dr. Gerald Paul, 52, has been the firm’s president since 1998 and COO since 1996. He joined Vishay Europe in 1978, and became a Vishay vice president in 1993. You can click into the firm’s Web site, www.vishay.com, for more information on its history.
Vishay does sell some integrated circuits, albeit much simpler ones than the microprocessors and other chips whose design is driving the computer and digital communications revolution. (Vishay’s integrated circuits tend to have a few relatively large and powerful transistors, and thus fill a niche between discrete components and complex ICs.)
Its products include (in approximate order of increasing complexity): connectors, resistors and capacitors (some discrete, and some arrayed in group packages), magnetics (inductors and transformers), diodes and rectifiers, and other transistors, optoelectronics, analog switches, frequency control integrated modules, and power ICs (for power conversion, power management, motor control, or bus interface). Got it? Good. The aforementioned components are not only the map of Vishay’s market, they’re the map of the market from which Vishay is well positioned to glean significant profits.
With a stock price below seven times trailing earnings (and below 11 times 2001 estimates), this stock pulls on the heart- strings of value investors seeking a cheap stock in a real company with real market share and real products. Of course, cheap doesn’t make it good. But, while many of the firm’s products are arguably in a price-driven commodity business, others (e.g., optoelectronics) are newer or more specialized.
And even for the most low-tech or discrete devices, there’s a “technology” aspect that comes from designing improvements in manufacturing and pricing and/or miniaturization, while handling higher power, frequencies, and temperatures. So, in this case, cheap makes Vishay look downright attractive. At a recent price of $24.79, and 138 million shares outstanding, Vishay has a $3.4 billion market cap, and the stock is between its 52-week high of $62.66 and low of $13.75. Striking while the market is cold could net you a solid gain in a low-tech company that is a necessary part of the new economy
Services
Healing Touch
While there may be no balm in Gilead (GILD), this biotech pick could offer healthy returns
T rue, there are many biotech companies to choose from, but there are few you will want to own for more than a short-term gain. Gilead looks like it’s positioned for long-term growth. Gilead does not make “me, too” drugs driven more by marketing need than medical need, and Gilead has no “lifestyle” drugs aimed at making basically healthy people happier with the thickness of their hair or the smoothness of their skin. Instead, Gilead is focused on necessary treatments for global diseases.
Gilead’s name derives from a region in the Middle East long recognized as the source of a healing compound known as the “balm of Gilead.” More recently, according to www.gilead.com, plants indigenous to this area have been associated with the analgesic properties of aspirin. (The site also describes the company’s history, which began in 1987. Its adventures in venture capital, partnerships, and new drugs and trials will give you, in microcosm, a useful perspective on the biotech industry.) In the latest news, on April 26, 2001, Gilead announced its results of operations for the first quarter ended March 31, 2001: Net product sales of $45.1 million, royalty revenues of $6.2 million, and contract revenues of $6.6 million totaled $57.8 million in revenues, up 21% over the same quarter in 2000.
The firm treats potentially fatal infectious diseases such as HIV/AIDS, complications of AIDS, hepatitis B, and cancer. It also has a novel treatment for the flu, a disease which many equate with harmless colds, but which has historically killed millions, and is still a very dangerous illness.
One advantage the company benefits from is the “Fast Track” designation the FDA can offer for drugs that “address an unmet medical need for a serious or life-threatening condition.” This designation was given, for example, to Gilead’s tenofovir DF treatment for HIV infection. That drug is a reverse transcriptase inhibitor. There are several on the market, but given HIV’s growing ability to resist many older drugs, and given the new drug’s once-a-day pill form, it certainly addresses unmet needs. Gilead hopes to introduce the drug by the end of 2001.
However, there are political pressures that investors in any pharmaceutical sector need to account for. Since 1993, the pharmaceuticals industry has rightly been seen as a politically risky sector in the U.S. and abroad. Crucial drugs for AIDS may be the riskiest from an investment standpoint, given activists’ views on socializing the pharmaceuticals industry to provide cheap drugs. The high-risk business of developing novel drugs demands high profits if investments in the area are to continue. It’s a Catch-22 for which Gilead may not be able to answer with one drug–but can make up for with others.
Some of Gilead’s drugs are based on existing pharmaceuticals. For example, its injectable drug AmBisome is a reformulation of the existing drug amphotericin B, for the treatment of various fungal or parasitic infections. Gilead’s version differs in that the drug is contained within liposomes. These tiny spheres, made out of the same sort of chemicals (lipids) as the walls of human cells, act like little cold capsules, lasting much longer in the human system and/or delivering more drug to target tissues than could the uncapsuled drug. This is not a trivial benefit; it can reduce toxicity, and can save lives when applied to injected drugs or drugs used as part of a complex combination, as is often the case with HIV infection. And while owning Gilead won’t be the cure-all for biotechnology investors, it’s positioned to last longer than most.
Gilead, with 94 million shares outstanding, a $4.8 billion market cap, and 850 employees, is a mid-cap biotechnology player with a necessary edge. The stock’s price, dulled during the first quarter selloff, has recuperated–but the longer-term prognosis for a healthy life beyond this year’s pale drew me to it. The 52-week high is $59.06. The 52-week low is $24.37.
TELECOMMUNICATIONS
Go Wireless
Intersil (ISIL) shelves the automotive electronics market to equip your cell phone instead
No debt, wired for profit, but with a P/E that could give you a moderate nosebleed, Intersil makes semiconductors and software for wired and wireless communications, including integrated digital and analog networks. In addition, the firm’s Endura power management circuits are used with nearly one-third of the world’s Intel Pentium processors, and half of the world’s AMD Athlon processors. Such power management devices are particularly useful in laptops, where lightweight batteries and more powerful microprocessors mean battery run times are increasingly critical factors in engineering design.
In March, Intersil announced that it was moving out of most automotive and industrial electronics markets (most notably, selling its discrete power chip business to Fairchild Semiconductor for $338 million in cash, a move which left Intersil with no debt and $600 million in cash) to emphasize its higher-growth and higher-margin communications and networking areas. Of particular promise is the prospect of wireless network cards soon becoming a commonly chosen option for new laptop PCs.
The sale of the discrete power business completed Intersil’s transition to a communications company, plugging into wireless access and the communications analog markets. For the first quarter of 2001, Intersil posted earnings of $0.07 per share, ahead of the last consensus estimates (earlier massaged downward by Intersil, from $0.20 to $0.05). The company expects a second-quarter revenue decline of 5% to 8%, but expects to again earn $0.07 per share in the second quarter due to cost cutting.
