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OIIM: HDR Monitors, 8K TVs and Smartphones Are Bright Spots For O2Micro

Zacks Small Cap Research
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By Lisa Thompson



O2Micro (OIIM) revenues for Q2 came in above guidance at $14.3 million. This is a decrease of 6% compared with last year, but up 8% sequentially. Strength in HDR monitors and 8K TVs surprised management as competitors played catch up to Sony’s and Dell’s offerings. Sony introduced an 8K television that use 64 of O2Micro’s area backlighting ICs in a single TV. 8K TVs use twice the dollar amount of its ICs than the 4K TVs. The company looks forward to the use of its products trickling down from high-end 4K and 8K models to mainstream TVs. Also, right now, high-end smartphones are the only ones using its fast charging capabilities, but fast charging will also begin to be needed with mainstream smartphones as they use bigger batteries in the move to 5G. Guidance for revenue for the third quarter of 2019 was up 5% to up 11% from Q2 2019, the midpoint of which is $15.5 million, which would be down 8% over last year. The third quarter, which is traditionally the strongest for TV, is being hurt by weak Chinese TV demand. This weakness, should result in a sequential improvement in sales in Q4 as it is a seasonally strong quarter for battery management, and smartphone sales should ramp. While getting near revenues that could lead to cash breakeven, the company warned it would need to spend in Q4 on R&D and preproduction for 2020.

Weakness in TV sales in China continues, but the inventory correction from component shortages has mostly been resolved. The second half of the year usually accounts for 60% of TV sales. O2Micro still expects revenues to improve sequentially as design wins convert to ramping production, particularly in smartphones. This year the company will see a production ramp for eight key customers for smartphones with more to follow, particularly when phones makers seek out fast charging solutions. These phones will be sold into China, the US and Europe. All sales to date have been for high-end phones, but fast charging and lower heat solutions will migrate to the mainstream with time giving O2Micro an advantage. These design wins involve chargers for various applications, including: high power two-cell charging, IoT product, wearables and express charging, as well as gas gauges and complex, integrated custom product for key customers. Sales will initially have gross margins below the corporate average of 50% but will improve with volume.

The company reported a GAAP net loss of $2.8 million versus last year’s gain of $1.5 million last year. This yielded a GAAP loss per share of $0.11 versus a gain of $0.06 a year ago. Non-GAAP net loss was a loss of $2.2 million, versus a loss of $1.3 million last year. The company reported a non-GAAP EPS loss of $0.08, versus a loss of $0.05 last year.

The company believes it can be EBITDA positive between $16 million to $18 million in quarterly revenues, and profitable between $18 million to $20 million in revenues.

Company Has Significant Upside If It Can End Cash Burn

The company trades at an enterprise value of $2.2 million. At the end of Q2 2019, the company had $34.9 million (or $1.32 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 at least $7 million. Plus it also owns other real estate in China and Taiwan. Also on the balance sheet are long-term investments in other companies, including 1.6 million shares of stock in Excelliance MOS (worth $6 million.) The company has a very high liquidation, as well as acquisition, value. Activists have 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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