Description

TRID is a cash-rich, fabless manufacturer of video semiconductors for flat panel TVs which is trading at less than 50% of net cash per share. TRID’s business peaked in FY 6/07, generating $270mln of revenue and 40mln of EBIT, as the company benefitted from growth in the flat panel TV market along with major customers Samsung and Sony (each ~30% of 07 revenues) due to the company’s reputation for best-in-class high-end video processors. The company has struggled in 2008 as they missed a shift in the market towards more integrated video chips which left the company unable to effectively bid for the 2009 product line and they lost contracts at major customers Sony and Samsung leaving ~ 90mln in FY 09 revenues.  However, the company has since acquired the relevant technology and prepared an improved, integrated product line which they believe gives them a good chance of retaking share at Sony and Samsung as the components are generally replaced annually with the production of new TV product lines.  However, as the purchase decisions on these product lines will take place in Spring 2009, it is difficult to tell whether or not TRID will be successful at retaking share. Given the downside protection provided by the large cash position, though, I think TRID has an attractive risk/reward at current prices. 

Currently, TRID has $230mln of cash (3.76 per share) and the company expects to burn ~40mln (0.65 per share) in FY 09 which would leave us with $3.11 per share in cash at FY 09. If the company fails to regain revenues in 2009, then they would likely burn more cash in FY 6/10 At current burn rates ($0.65 per year), the company’s net cash would not drop to the current share price until early in FY 6/12. Alternatively, lets assume that TRID loses all of its revenue in the next year.   According to the CFO, TRID has $64mln of fixed cash expenses. Thus, if TRID loses its remaining revenues and does not rationalize its expense structure, then the company would burn $1.03 per share of cash per year. Thus, TRID would have $2.08 of FY 6/10 net cash and $1.05 of FY 6/11 net cash per share. One has to assume that this business has 0 revenues for the FY 10 and FY 11 for the net cash to drop significantly below the current share price. I believe that TRID’s large cash pile provides the company with a long runway to regain share and provides an investor with significant downside protection if the company is unsuccessful in regaining share in Spring 09.

If the company is successful in regaining share at Samsung and Sony, revenues could return to $250mln+ (271mln in FY 07, 258 mln in FY 08), or ~$4 per share of revenues. Value the revenues at 1x and add the cash, and you have $7 per share in an upside scenario or 4x the current price. 

Catalyst

Product line wins
Discount to net cash narrows