This logo is the stacked version of the Integrated Device Technology Inc. (Photo credit: Wikipedia)

Nov. 14

Integrated Device Technology

IDTI : NASDAQ : US$5.75
BUY  Target: US$6.50

COMPANY DESCRIPTION:
IDT designs, develops, manufactures and markets a range of semiconductor products for the communications, computing and consumer industries.
Computing products are designed for use in desktops,notebooks, workstations and server applications while consumer products are optimized for gaming consoles, set-top boxes, digital TV and smartphones.Communications products are designed for use in networking and telecom applications.

Investment recommendation

Following upbeat meetings with IDTI management and investors, we continue to expect IDTI shares to see upside on new product opportunities and operating leverage. Despite the tough environment, IDTI’s new product revenue appears on track to hit the low end of guidance for F2013 while offering potential for substantial growth beyond, especially for SSD controllers and wireless charging. Meanwhile, management remains focused on controlling Opex to reach a target of 20% operating margin exiting F2014.
New product opportunities loom in 2013 Management was upbeat regarding revenue potential from new products beyond F2013 (ends March) and highlighted Flash controllers and wireless charging. According to iSuppli, the market for enterprise Flash controllers is forecast to reach 5 million units in 2013, with 40% based on PCIe. If IDTI gets 30% market share, they could be looking at a $150 million annual revenue opportunity (1.5 million units @ $100 ASP).
We note that 2nd gen flash controllers are selling into not only the SSD vendors like the 1st gen, but also to server OEMs and data center providers. For wireless charging, IDTI expects an over $1 billion TAM to materialize over time (400-500 million handsets, 200 million ultrabooks, @$2 ASP = $1.2 billion TAM). Just 10% share could drive over $100 million in annual wireless revenue. We note that our estimates assume no growth for core products and new products growing from $80 million in F2013 to $100 million in F2014 (25% growth).
Valuation
IDTI’s price target of $6.50 is 15x our C2013 EPS estimate of $0.31 plus net cash of $1.84/share.

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