I read and re-read the earnings call transcript. I was a little disappointed. I'm happy that Acts increased revenues. It appears that the new tablet chips are beginning to ramp up and add to the top line.
However, a few things concern me. Margins dropped a significant amount. According to the CEO that was due to the volume discounts for the MIPS product. He mentioned that line was nearing maturity, and that Acts was shifting focus to the 2nd generation of their tablet chips. That's puzzling to me, as the 1st generation has been in production for less than a year, if I recall correctly. If the shelf life of these new chips are so short, how will Acts ever get margins high enough to make a reasonable profit?
Also, I noticed that 1.7m of the revenue was related to 'other income,' in this case being the currency exchange rate and interest income. Although that's nice to see, it's hardly consistent. Without it, revenues would have come in around $14m. Also, one would think with the 'other income' being about 12% of overall revenues, margins would have been higher than 32%.
Further troubling, guidance for the Q1 of $12-$13m. I realize this Q is usually their slowest. However, I expected more based on the new product mix and ramp-up. Given the 35% margnin prediction, Acts will likely book another loss for the Q.
Also, I know, I keep listing things, the 'other impairments.' Bothersome, as they seem to have one of these about every other Q. Add to that, the cash balance decreased by about $7m while the short-term borrowing went up by $10m.
Now, let's consider where Acts SP is. It's as high as it's been in sometime. I must confess, I moved out of my position about 15% ago, so left money on the table, although I made a decent return. That said, Acts is getting top heavy. The relative strength is near 80, indicating an over-bought situation. Add to that the MACD, although positive has been declining over the last few days. Additionally, share volume which his a peak on Jan 14th when the sp cross 2/share has been receding. The bollinger bands have widened dramatically, indicating that the stock 'should' drift.
None of the technical analysis would mean a lot if the earnings/guidance were very strong. However, given the the luke-warm report/guidance, at least in the short-term, and the technical top heaviness of Act's share price, I see the probability of the stock dropping to be much greater than it going higher.
On the top end, Acts' sp price could hit as high as $2.25/share before running into resistance. On the bottom end, and this is the risk, it could drop as low as $1.71 before hitting support. I doubt we'll see 1.71, however, if we do, I'll be buying again, as I see the longer-term prognosis as being relatively strong. However, I'm sitting it out for now as the high sp probability is much lower than the drop off. The risk/reward is a potential 7% upside, with a down-side risk from current levels almost a 19% haircut.
I sit this one out for now.
It looks like your chart was broken. You predicted no movement for two weeks and instead we got a 12% gain. I think we saw a normal pullback after a very fast 30% gain. I think we move higher headed into earnings. GLTA
I think this dialogue is great. I have been following ACTS for years and have never seen such thoughtful discussion on this board. From a stock perspective it seems to me like ACTS is much better positioned than it has been for years, with substancial revenue and EPS growth starting in 2Q (hopefully). Management also noted on the call that they could be announcing multiple additional tablet wins anytime. Given the fact that this company is valued significantly below cash, is buying back stock, has meaningul revenue potential, new contract catalysts at any time, and with management coming to the US to meet investors soon, I think investors should be looking to buy this stock and not try to trade it for pennies when they could make $s on this name. When the catalysts come this stock could shoot up at anytime and you could easily miss it. I think ACTS stock is among the best risk/reward investments in the entire global stock markets. Also keep in mind that ACTS would make a perfect aquisiting target from multiple types of investors because of its discount to cash on its balance sheet. Good luck all.
Sentiment: Strong Buy
Trading about where I anticipated after the earnings report. The report was solid, margins were weak, S-term guidance weak. That said, the long-term prospects for Acts are very strong. I was hoping for more of a sell-off, so that I can re-enter. That said, right around 2/share, I'd rate Acts a hold. It needs to dip about 10% for me to buy. Assuming it runs a little again, I'd look at locking in profits around 2.20/share on any short-term run. The further we get into the 1st Q, the less likely I'd consider selling at 2.20.
Currently, we're in no-mans land. The MACD is virtually nil, indicating a balance between buying and selling. RSI is 56, again, mid-range. Bollinger Bands are wide, indicating sp drift in the short-term. 50 day mva is 1.74, 200 day at 1.67. That's about as low as Acts can go. The upper band of the BBs is at 2.25, hence my rec to lock in at 2.20 or so.
I just don't see Act moving much either way over the next few weeks. I'll try to readdress in about 30 days.
Really good points. I'm a new shareholder who was attracted to the launch of the ATM7029 and the balance sheet. I am very disappointed with the Q1 revenue guidance. I wanted to hear something to make me buy more shares today, but have decided to wait until I hear some better news. I'm keenly aware that this stock has recently languished below $1.75 for a year or so.
That being said, I'm not about to sell my current shares while the company is valued at negative $50 million Enterprise Value. You very well could be right about the short term movement, but the price is this low because of investor sentiment not because of the fundamentals.
It may take some better news to make the stock price move up sharply, but why risk a potential 50% upward move - to an Enterprise Value of $0 - because there is a chance in the short term that it might fall back 10%?
The Chinese tablet market is the wild west. As the market explodes from 20 million units to 80 million units this year, I think it's impossible for Action or its customers to accurately predict volumes for the year at this point. Let's hope Ainol and RAmos are well received and let's hope Action can win some additional design ins.
I think all the above comments are good and in line with the reality. However, development of ATM7029 is no small thing for Actions. This gives them entry to the tablet market. In the next 5 years there will be huge demand for the tablets which we have not imagined. When you have a 7" tablet available for $50, all the cars' audio will be replaced to combine the radio + GPS + log more into one unit. There are umpteen applications for these $50 tablets. In one restaurant I saw that the tablets were placed on the tables to select the menu and place orders so they eliminated part of their work of order taking and errors in that.
All I am saying is that there is huge potential of tablet market. However, at the same time I am not impressed with Actions management at all. In the past they have been saying that they only invest in high quality securities without taking any risk. Now they are writing off some bad investments. It does not not make sense. Another problem with the management is that they are always looking for the bottom tier market. Why not provide value added product with higher margin and build some brand image. I read a comment that they did not use a better quality GPU to same little amount.
On the plus side, with the development of ATM7029 they have become a prime target for take over. If a company becomes interested then the share price will definitely will be $4+.
Let us wait for little more...
You make a good point. Revenues were helped by "other income" which has nothing to do with their business. Also concerning is the fact that they keep losing money each quarter despite the fact that there is a share buyback.
I understand the high R&D expenses but I do not understand why their other expenses are so damn high. It is possible that the CEO is trying to phase out and do damage control on a lot a issues he was saddled with when he became CEO.
On another note, I re-read the cc transcript and can't help the feeling that ACTS may be in talks with a company to either: (1) purchase some IP and/or product-line; (2) purchase a company; or (3) merge. I suspect that (3) is probably nothing more than a gut feeling and my gut has been wrong before but (1) and (2) are quite probable. One way ACTS could turn to the "black" and ramp up revenues right away would be to purchase a company that already has selling products and contracts.
The other gains will continue as long as china's economy continues to strengthen an they continue to open up their capital markets, action's cash becomes worth more and more in way of US dollars.
It would be interesting if they make a major acquisition. Though It would also raise the company's risk profile by quite a bit, so I don't know how I feel about that thought.
A note to take is that over the last couple of first quarters they have tended to low ball the estimates.
This is a weird situation to be honest, their operations are not worth that much at the moment, but they seem to be achieving steady revenue growth from the hole they were put into in 2010 and 2009. the costs are a bit too high, but then again they're employing a lot of engineers in china where wages are growing rapidly. I would not be surprised if R and D is as low as they can get it without saying,"whelp we're done trying to develop new products."
they bought back 500 thousand shares last quarter as well, where will all these shares come from to make it drop that low? especially with company buying back around 1% of their outstanding shares every quarter. They have bought back 20.2 million shares, let that sink in for a moment, the majority of people who would have sold at these levels have sold, any person who does sell, their shares will be bought by the company eventually.
the supply and demand situation dictates that it will be driven up to at least 3 dollars.
I appreciate your perspective. You may be right, but I've never seen share buybacks solely as a reason a sp goes up. Additionally, as the CEO pointed out, their buybacks are constrained by blackout periods and overall Acts share trade volume. The risks remain. That said, it's holding up okay today. We'll see.