am recommending a long position in ANAD 10/15/2009 converts or ANAD common
stock, as the company has a sufficiently negative enterprise value, a brand new
semiconductor fabrication plant and a new management team with the will to cut
costs. If you are able to buy the converts (not likely), they last traded with
a ~31% YTM. In a liquidation scenario, I value ANAD as follows:
$2.06 (100% of book value)
term investments: $0.07 (50% of book value)
$0.29 (50% of book value)
$0.11 (20% of book)
$0.17 (10% of net PP&E)
$0.37 (100% of book)
expenses: $0.22 (100% of book)
term debt: $0.60 (100% of book)
business would be worth at least an additional ~$2.00 if one were to take a
previous trough EV/Sales multiple of 0.7x (1998) and apply this consensus
trough revenues of ~$191 million. While I think ANAD is in a more precarious
position than history, I do think it serves as a starting point valuation in
the scenario that the business is an on-going concern, whatever probability you
assign to that.
is a value destroying semiconductor designer and manufacturer of power
management products for the wireline (set top boxes) and wireless (cellphones) industries.
Production mismanagement has resulted in customer loss, customers looking to
second source and the miss of a design cycle for a few products (~12-18month
design cycle). That said, Anadigic’s intellectual property and manufacturing
know-how have value if one believes that minimizing power use will be important
with ever-more sophisticated set top boxes and cellphones.
August of 2008, significant management changes were initiated to address the
company’s misexecutions. Giles Delfassy, a Texas Instruments veteran on the
board, took the position of interim CEO and has indicated that one of his
priorities will be cost cutting. Additionally, a veteran of Intel’s
manufacturing operations was brought in to address production problems.
position: Anadigics has ~$2 in cash and ~$0.14 in auction rate securities.
cuts: After finishing a plant in China in 4Q2008, ANAD will cut annual capex to
a maintenance level of $5-10million annually versus calendar 2008 capex of ~$62
cash flow focus: Management intends to maintain positive free cash flow as so
far evidenced by their Nov 2008 announcement of a 15% reduction in the
to focus on maintain and generating cash.
to respond quickly enough to declining revenues.