BULL POINTS:
■ Growth opportunities in smartphones
■ Global wireless shift offers huge opportunity in developing markets
■ Deals with major manufacturers
■ Shares trading unwarranted 2011 ex-cash PE of just 6
BEAR POINTS:
■ Questions over competitive edge
■ Patent infringement case
Investors looking for a way into wireless technology and trendy consumer electronics should look at chip maker CSR. The Cambridge-based company makes microchips for wireless web access, global positioning systems (GPS) and Bluetooth.
Wireless broadband is common place in homes in the developed world, but the trend is global and there are huge opportunities for CSR in developingeconomies. Then there are so-called smartphones. Globally, more than 314m handsets were sold in the first three months of this year, according to market researcher Gartner, yet just 17 per cent of those were smartphones. But this is changing fast, with smartphone sales up 49 per cent over the same period as consumers seek fast web access and clever applications from handheld devices. Some estimates suggest that close on 100m smartphones could be sold in China alone by 2015.
CSR has been criticised in the past for not doing enough to woo the very biggest handset manufacturers, and critics have claimed the company’s products are not sufficiently cutting edge. But CSR is starting to prove them wrong. Maiden wireless and Bluetooth chip shipments to its first Tier 1 manufacturer – rumoured to be Samsung of Korea – were revealed alongside first quarter results last month. A second deal with a Tier 1 manufacturer (perhaps with LG Electronics) might be announced with the first-half results next month.
| IC TIP RATING: | |
|---|---|
| Tip style: | Speculative |
| Risk rating: | Medium |
| Timescale: | Long-term |
GPS is another growth area for CSR, where its SiRFstarIV chip is used on China Mobile's Ophone platform. CSR is reckoned already to be selling GPS chips to Blackberry-maker Research In Motion, Samsung, LG and Motorola and is keen to persuade these manufacturers to buy its wireless chips as well. There are also good opportunities in the automotive industry as car makers increasingly put GPS and wireless technologies in to new models.
| ORD PRICE: | 403p | MARKET VALUE: | £742m | |
| TOUCH: | 402-403p | 12M HIGH / LOW: | 524p | 321p |
| DIVIDEND YIELD: | Nil | PE RATIO: | 13 | |
| NET ASSET VALUE: | 291p | NET CASH: | $408m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share ($) | Dividend per share (¢) |
|---|---|---|---|---|
| 2006 | 705 | 154.4 | 0.86 | nil |
| 2007 | 849 | 155.6 | 0.86 | nil |
| 2008 | 695 | -6.45 | -0.05 | nil |
| 2009 | 601 | -14.2 | -0.07 | nil |
| 2010* | 857 | 71.7 | 0.44 | nil |
| % change | +43 | - | - | - |
NMS: 10,000 MATCHED BARGAIN TRADING BETA: 1.0 *Execution Noble forecasts (Profits and earnings not comparable with historic figures) £1=$1.46 | ||||
It's also encouraging that CSR has bounced back into the black. First quarter results showed pre-tax profit of $4.4m (£3m) compared with a $22.5m loss in the same period a year ago, on revenues up 114 per cent at $173m. Second-quarter revenue could come in as high as $225m, compared with previous expectations of $199m.
CSR is cash rich with $408m on the balance sheet despite spending nearly $156m on research and development last year. Some say that cash could be handed back to shareholders, although CSR is also eying acquisitions, most likely bolt-on deals in near-field communications and audio enhancement markets.
One cloud is a patent infringement case involving the GPS technology that came with CSR's £91m purchase of SiRF last year. But CSR factored the legal spat with US firm Broadcom into its purchase price. Besides, it reckons losing the case would more likely mean paying compensation than restrictions on selling SiRF’s GPS chips. And this worry looks priced into the shares, given their dismal rating.
