Analyst Program AP Trident Microsystems TRID

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Analyst Program (AP) Trident Microsystems (TRID)
Wednesday, October 15th
Justin Van Vleck Yichao Wang Spencer Olson Phil
Garrett Stephen Amato
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Reasons we recommend hold

• Loss of huge customer Samsung for foreseeable
  future (30 of 07 revenue)
• Internal company instability
• Very difficult to value

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TRIDs Business Model

• Designs, develops and markets integrated
  circuits, or ICs, and associated software for
  digital media applications
• DTVs
• LCD TVs
• Digital Set Top Boxes (STBs)
• Integrated circuits (ICs) include transistors and
  capacitors integrated in one semiconductor chip

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Relevant Industry Info

• Short product life cycles many competitors
  constant need for innovation
• Inventory obsolescence follows regularly as a
  result
• Average Selling Price (ASP) declines are very
  common

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Key Debate Around the Stock

• Company recently guided revenue substantially
  lower
• 257mm revenue this year vs. 115-135 mm
  forecasted by mgt. next year (approx -50)
• Not a matter of if TRID will lose money next
  year, but how much
• What does the TRIDs future look like as a player
  in this industry?

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Market Bleak on TRIDs Outlook

• Company current has 240 mm in cash, but the
  market cap is 129 mm
• On a per share basis, this translates to 3.82 in
  cash/share vs. 2.09 share price in market
• Translation Market thinks TRID will lose over
  100 mm in foreseeable future (forcing it to use
  about 100 mm cash)

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We think the Market

• Has the right idea, but has likely overdone
  things a bit
• However, we still think company poses too much
  operational risk to justify investment
• Internal instability within company
• Extremely competitive industry
• Small barriers to entry, no leverage over their
  customers
• 3 customers accounted for 76 of revenue last
  year
• 75 of cash is in Hong Kong, subject to
  repatriation

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Furthermore

• Company may in fact be undervalued, but hard to
  set any business value besides cash/share
• True cash per share value likely only .96/share
  (cash in U.S.)
• Cant predict PE expansion because of earnings
  uncertainty
• Company has no strong assets
• With small barriers to entry and difficult to
  value, TRID not worth our time

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Questions?