Written by: Zack Miller | October 24, 2007
Zack Miller
IsraelNewsletter.com
Why is everyone getting so excited if Zoran (ZRAN), a developer and marketer of integrated circuit cores (ICs) and embedded software for DVDs, digital cameras, and set-top boxes, guided all segments, except for DTV (Digital TV), to be down next quarter?
Good question. The stock was up 15% yesterday (over 20% the past couple of days) on the back of the earnings coverage found here. Most outlets assumed that it was off the back of an upgrade by Needham.
Revenues were all much stronger than consensus. In short, ZRAN had a blow out quarter ($146M over expected $138M and $.51 vs. $.37). Zoran achieved record revenues for DTV and their Printer Imaging units, while also seeing strength in the DVD market as well. Digital Cameras shipped a record amount of units.
Revenues were up almost 13% Q/Q and 13.2% Y/Y. Gross margins were down from the previous quarter but still above where they were tracking 1 year ago. Cash was up 6% Q/Q and almost 30% Y/Y.
Although there will be some near-term volatility in earnings, ZRAN has certainly become more consistent in their results. Those of us who have traded ZRAN in the past are familiar with its volatility in performance — it looks like ZRAN has matured operationally.
So, what’s going to take this puppy up even more so that even my colleague, Aaron “Buy Everything” Katsman wants to own it?
Needham cites a few 2008 revenue drivers:
1) Ramp to ATSC converter boxes: Did you know that in February 2009, the US will turn off analog TV broadcasts, forcing the conversion to digital TV? In order to receive the new signals, the installed base of analog TVs will need to connect to an ATSC converter box. Congress has approved a coupon program such that each qualifying household will receive two $40 coupons to defray the cost of buying a converter box. Management estimates that the number of converter boxes sold ahead of the turnoff could reach 20-25 million units. Zoran typically sees a high-single digit dollar content off of these units. Nice driver.
2) Growth in DTV and tier-one OEM design win: Zoran markets a SupraHD product to the DTV market. Zoran experiences sequential growth of 41% and forecasts more DTV revs in Q4. Zoran is positioned well in Insignia, Magnavox, RCA and Sanyo (found in Best Buy) and has new wins at Fujitsu and Mitsubishi. The company feels confident it can secure a tier-one win with an LCD TV OEM in 2008.
3) Launch of Approach processor for handsets: LG will be marketing its U990 touch-screen, 5MP camera phone. Based on initial design wins, Needham believes that Approach revenues could reach 5% of total sales next year, up from virtually 0 this year.
4) Further market grab in DCAM (digital cameras): Zoran has about 30% market share of the DCAM silicon market. Given current penetration and the market opening up for high-end digital SLRs, Needham thinks ZRAN can eke out some more share grab and exit 2008 with 35% of a growing market.
With a lot of cash on the books and some potential upside to margin expansion, ZRAN may look picture-perfect for our incessant march to a digital life.
Say cheese.
Disclosure: Author’s fund has a position in ZRAN as of 10/24/07.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
Written by: Aaron Katsman | October 22, 2007
Aaron Katsman
www.IsraelNewsletter.com
I was never big on bragging, well maybe I was, just never had much of a chance, but today’s news that G. Willi Food Intl (WILC) signed a binding term sheet with the owners of a Russian dairy distributor was predicted. The distributor is a leading supplier and importer of dairy products in Russia, and together they will form a new joint company. Willi Food would hold a 51% interest in the new company. This reminds me of the Philosopher Kings classic lyrics, “I am the man, that’s what I am. I’m a straight shooter with a master plan.” Okay, to all you jokesters out there (and you know who you are) who are now going to remind me of some of my less-than-stellar analysis, give me a break and let me have my fun.
For ‘07, analysts think this distributor will sell roughly 36,000 tons of cheese products to a base of over 1,000 customers in Russia and generate an estimated $120 million in sales. According to HLB Prime Advice, a Russian appraisal company, the distributor is a leading distributor of all cheese types in Russia and the biggest supplier of hard cheeses such as Gouda and Edam to this market. I love my GOUDA cheese! Nothing like watching football with some Gouda and crackers. This follows on what I have said in the past: that G. Willi is making a big push into the Russian food market. It’s become clear that with growing wealth and more disposable income, Russian consumers have created a large demand for imported, premium products. G. Willi can help satisfy that demand with their broad selection of healthy dairy products and other foodstuff.
Mr. Zwi Williger, President and COO of Willi Food commented, “We are very excited about this transaction, which represents a bold step for Willi Food as we continue to expand our global footprint. According to market data, over 650,000 tons of cheeses are consumed in Russia each year of which roughly 50% is imported. We believe that NewCo will provide a well-developed distribution platform for Willi Food and its subsidiaries to drive market demand for dairy products in all categories including premium branded products, kosher and healthy living styled dairy products, as well as other categories.”
As I write this, my local Dolphins fan (ouch), Zack “Facebook“Miller, asks,” What’s their competitive moat?” First of all, what the heck is a Moat? Anyway, the answer lies in Arkadi Gaydamak. He owns the parent company Willi Food Investments and he is the largest egg distributor in Russia. He himself is a huge distribution channel, and with this new deal, look out. Willi will carve out nice marketshare in the Russian food market.
How is that for some Moat!
If you are looking for a small food company that’s about to explode onto the global scene, have a long look at G. Willi. The stock has taken a hit, and looks attractive as a long-term investment.
Please see our Disclaimer HERE.
Disclosure: Author has a position in WILC as of 10/22/07. Author has no holdings in any other stock mentioned.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | October 18, 2007
Aaron Katsman
www.IsraelNewsletter.com
Last night, as I often do, I fell asleep on the couch. I woke up at 2:30 am and decided to see if anything interesting was on TV before heading off to bed. I got to the entertainment channel and they had a special about Hollywood stars that had cosmetic surgery, and how it impacted their careers. Fascinating it wasn’t but it was a prelude of what was coming later in the day. Like a bad nose job, Syneron(ELOS) announced today that they were lowering Q3 numbers. This sent the stock down 11%. Syneron designs and sells medical products based on their own proprietary Electro-Optical Synergy, or ELOS technology. They promote their non-invasive procedures, like wrinkle reduction, hair removal, and skin rejuvenation. They blamed the lower numbers on manufacturing delays in the new VelaShape System and Matrix IR applicator, which caused a 4 week delay in their launch. Syneron now expects Q3 revenues of about $33 mln vs. $36.2 mln consensus, and net profit of $7-8 mln. They estimate Q4 revenue of $36-38 mln, vs $40.2 mln consensus.
This news is a big setback for the company. In the previous few quarters it appeared that they had finally started executing the business model, and growing the company. In the first quarter, Syneron signed a collaborative agreement with Procter & Gamble(PG) for the commercialization of Syneron’s ELOS(TM)-based, home-use device. The stock has fallen to levels not seen in 15 months, and that was during last summer’s war with Hezbullah. Does this mean that under $20 we have reached attractive levels for an investor? My hunch is that we will see even lower levels, as I wouldn’t be surprised if we get another warning before Q4 numbers are announced. This product delay may take another quarter to work it’s way through the system. I think that the growth story for Syneron, will only play out in ‘08. That being said, for long-term investors wanting to play the aging baby boomer search for youth, Syneron may yet turn out to be the procedure to put a smile on your face.
Please see our Disclaimer HERE.
Disclosure: Author has a position in ELOS as of 10/18/07. Author has no holdings in any other stock mentioned.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | October 17, 2007
Aaron Katsman
www.IsraelNewsletter.com
Ormat(ORA), a company that engages in the geothermal and recovered energy power business, continues its’ recent surge amid conflicting takeover rumors. Early in the day rumors had the Apax fund paying $2.25 billion for the company. Both parties strongly denied these rumors. Then the next rumor hit, that none other than Goldman Sachs(GS), was looking at buying a 10% share of the company. Interestingly enough, ‘no comment’, was the response of choice. Sounds like we have a winner! Though it’s important to note that Merrill Lynch(MER) came out with a note that they think nothing is going to happen. The fact that we had no denials from either side, sure sounds like something is going on. The shares of Ormat have been flying, surging 25% over the last 2 months. I had posted in late June about a possible takeover and since then the stock is up over 43%.
With crude prices over $87, strong interest continues in alternative energy and I would expect consolidation in the sector. I think that Ormat is an interesting target, and wouldn’t be surprised to hear a deal announced in the not to distant future.
Please see our Disclaimer HERE.
Disclosure: Author has a position in ORA as of 10/17/07. Author has no holdings in any other stock mentioned.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
