OIIM: Growth Expected to Accelerate Throughout the Year

By Lisa Thompson

NASDAQ:OIIM

O2Micro (OIIM) reported Q1 2018 revenues of $14.1 million, down 7.3% sequentially, within the range of guidance of down 2-8%. This is typical seasonality from Q4 to Q1. It is the second down quarter for the company after its string of five straight quarters of revenue growth. Guidance for revenue for the second quarter of 2018 is sequentially up 2-10% from Q1 2018. The midpoint in revenue guidance would result in revenues being up 3% from a year ago.

While the first half of 2018 looks weak compared to the first half of 2017, it is more of a case of 2017 being an unusual year with industry component shortages and inventory affecting the normal course of business. O2Micro expects this year to be more typical as shortages have been mostly eliminated. Q2 this year is seeing stronger growth in battery management as it has a more diverse customer base. In the past this business was heavily dependent on power tools that are very seasonal and this year there is more demand from e-bikes, e-vehicles, vacuums, and UPS power supplies.

The company continues to project cash breakeven at $15.5 - 17 million in quarterly revenues and profitability at $17-19 million.

Gross margin was 51.7%, up sequentially (from 51.2%) but down year over year (from 52.7%) due to lower revenues and product mix.

Operating expenses in the quarter were $9.8 million versus $9.1 million last year and $9.4 million in Q4 2017. The increase versus last year was entirely due to increased R&D expense.

Operating losses increased to $2.5 million in Q1 2018 from $1.2 million a year ago, due both to lower revenues and increased spending.

In the quarter the company took an unrealized gain of $9.8 million on a long-term investment. This gain was from ownership of the stock of Excelliance MOS Corp. (5299.TWO) a private company that went public on January 23, 2018. Because of this gain the company reported positive net income of $7.2 million versus a loss of $1.5 million last year. This yielded fully diluted GAAP EPS of $0.27 versus a loss of $0.06 a year ago.

Non-GAAP net income was a loss of $2.0 million versus a loss of $1.0 million last year. The company reported non-GAAP EPS loss of $0.06 versus a gain of $0.01 last year. Non-GAAP EPS was a loss of $0.06 versus a loss of $0.04 in 2017.

At March 31, 2018, the company had $45.1 million in cash and equivalents (or $1.73 per ADS), down $1 million sequentially. The company expects to be cash flow breakeven in the second half of this year, but not for the full year.

The company trades at a negative enterprise value of $9.9 million. Last year the company looked as if it had turned the corner and was approaching profitability but panel shortages for TVs nixed that progress and the valuation of the company slipped again. Now it looks like these shortages have ended and business has been mostly normalized. At the end of Q1 2018, the company had $45.1 million (or $1.73 per ADS) in cash and equivalents, no debt, and valuable real estate in China and California. In California it owns a 37,180 square foot building where it has its USA operations, which was bought for $4.6 million in May 2004 and believe it is now worth approximately $7 million. Plus it also owns other real estate in China. Also on the balance sheet are long-term investments in other companies, including at least $9.8 million in stock in Excelliance MOS. The company has a very high liquidation as well as acquisition value. Activists had tried to encourage a transaction with an acquirer, but the company has no interest in a sale and due to restrictions, it is difficult to force one.

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