Micro-chip maker CSR has not had any easy year. In 2011 it got stick for its failure to crack the lucrative market for smartphone chips, and reacted with the $223m (£147m) acquisition of loss-making camera chip maker Zoran. But, one year on, it has posted a promising set of first-quarter results for 2012 - it made an underlying profit of $2.7m for the 13 weeks to 30 March, when City analysts had been expecting losses.
- Zoran acquisition looking good
- Growing automotive business
- Exited TV set-top boxes
- Progress in handset market
- Navigation devices faltering
- End market is fast moving
Much of CSR's optimism stems from the Zoran deal, which we and many others thought a bit desperate at the time. By the end of the first quarter, CSR had cut underlying operating expenses to $112m (£70m) from $124m in the previous quarter, and Zoran's integration is set to deliver cost savings running at $130m a year by the end of the half year. Zoran has also given CSR a dominant position in digital cameras - its chips are used in more than half of the world's cameras, including Samsung and Sony models. So cameras now account for 11 per cent of group sales, having accounted for less and 1 per cent previously.
CSR is also putting Zoran's know-how into its own platforms to stay ahead in the fast-evolving world of electronic devices. Now CSR's fastest-growing business is its automotive division, which accounts for 21 per cent of sales. Here, CSR supplies chips used in navigation and infotainment in models that range from Bentleys to Toyotas. True, sales of navigation devices are falling, but in the first quarter this was more than offset by strong growth in infotainment devices, where revenues soared 37 per cent to $39.6m.
CSR (CSR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 213p | MARKET VALUE: | £426m | |
| TOUCH: | 212-213p | 12-MONTH HIGH : | 379p | LOW: 153p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 273p | NET CASH: | £158m | |
| Year to 31 Dec | Revenue ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 0.60 | -14.2 | -7.00 | nil |
| 2010 | 0.80 | -5.70 | 9.00 | 6.50 |
| 2011 | 0.85 | -51.5 | 19.0 | 10.3 |
| 2012* | 1.02 | -7.00 | 31.0 | 13.0 |
| 2013* | 1.03 | 34.0 | 32.0 | 13.0 |
| % change | +1 | – | +3 | nil |
Normal market share: 10,000 Matched bargain trading Beta: 1.3 *Deutsche Bank forecasts (earnings not comparable with historic figures) £1 = $1.58 | ||||
Simultaneously, CSR is making belated progress in the market for smartphones. It has reduced its exposure to the world's troubled handset makers - Nokia and RIM - and its major customer is now Samsung, the world's largest smartphone maker. Moreover, management has cut CSR's exposure to declining and low-margin products where it is not a market leader, such as digital TV and set-top-boxes.
Following these changes to the product mix, about 57 per cent of group sales now stem from high-margin platforms, with half of its microchips by value going into products that can claim to be one of the top two in their respective markets. This is vital for CSR, as its chips are only as good as the products they are in. Conversely, where it supplies products that fall behind the technological curve - as with Nokia's smartphones - the impact on revenues can be marked. But that's an ever-present risk supplying markets where today's winners can rapidly become tomorrow's losers.
