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Technology Stocks : MOSY - Monolithic System Technology (formerly private MoSys)
MOSY 1.830.0%Nov 25 8:10 PM ESTNews

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To: Jim Oravetz who wrote (32)2/14/2006 8:55:44 AM
From: D. K. G. of 40
 
Super Spec
By RHONDA BRAMMER
THIS BUSTED TECH STOCK IS A SPEC, no doubt about it. And a low-priced one at that. Shares closed Friday at a mere five bucks and change.

But what makes it an especially intriguing -- indeed, in some ways compelling -- spec is that it's debt-free, boasts nearly $3 a share in cash and investments, and lays claim to unique, cutting-edge technology that just might pan out in a very big way.

The company -- you thought we'd never tell you -- goes by the rather formidable moniker of Monolithic System Technology and sports the laid-back ticker symbol MOSY.

Though revenues are still dinky and the company was barely break-even last quarter, Monolithic boasts a roster of big-name customers, 79 U.S. patents and gross margins that routinely run an eye-popping 80%.

Its stock-market value weighs in at $180 million or so. Not a whole lot, since cash and investments all by themselves amount to $84 million. The valuation looks even more modest in light of an all-cash bid of $13.50 a share for Monolithic in February 2004, a deal that valued the company at some $430 million.

Management of the potential acquirer, Synopsys, a company reputed to have a sharp eye for promising technologies, lavished unstinting praise on Monolithic's proprietary memory technology for semiconductors, calling it "unmatched in density, power, speed, low cost and high yields."

But in April 2004, two months after the initial bid and at the very last minute, the deal fell through. Not coincidentally, perhaps, Wall Street had been grumbling that Synopsys was overpaying and had sharply marked down its stock. Synopsys wound up giving Monolithic a $10 million break-up fee, half of which it used to buy back stock.

But the collapse of the merger sent Monolithic shares spiraling downward to as low as $3.85 in the summer of 2004. In December of that year, with the stock under $5 and management struggling to reassure customers and rebuild its sales force, we penned an upbeat note on the company, suggesting that in a year or so, shares could double. In fact, they have risen a little over 15%.

A few days after our story, Monolithic's co-founder and chief exec resigned because of illness, adding to the turmoil at the Sunnyvale, Calif.-based company.

But the good news is that Monolithic -- with a new chief exec at the controls, 57-year-old Chet Silvestri, a 25-year veteran of the semiconductor industry -- has made impressive strides this year, building its sales and marketing teams, increasing its sales and expanding its customer base. Indeed, if Silvestri can ramp up revenues to the next level, as he believes he can, with gross margins running 80%, that portends very good things for the bottom line.


In short, for the venturesome investor, Monolithic is a rare opportunity. Though it has taken longer than we thought, the stock now stacks up as an easy double in a year or so, and in two or three years, perhaps considerably more.

An electrical engineer with an MBA from Harvard, Silvestri -- whose résumé includes stints as a product-marketing manager at Intel, V.P. of marketing at MIPS Technology and president of the Microelectronic division at Sun Microsystems -- is convinced Monolithic's technology is in a "sweet spot," positioned to take off as new generations of products, be they cellphones, digital cameras or networking gear, "drive the need for memory through the roof."

Dubbed 1T-SRAM, short for one-transistor static random access memory, this patented technology offers a way to embed high-density memory on complex integrated circuits called system-on-a-chip, or SoC. The circuits go into everything from video games to communication equipment.

In applications where high speeds or lots of memory aren't needed, traditional embedded-memory technology, plain old SRAM, works just fine. But because of its low density, traditional SRAM hogs a lot of space on the integrated circuit and, at high speeds, eats up a lot of power.

Where companies need slugs of memory, the beauty of Monolithic's 1T-SRAM technology shines: It typically uses 50% to 75% less silicon for the same amount of memory, costs 50% to 70% less and consumes only about one-fourth the power.

Back in 2001, when Monolithic came public, it reaped the majority of its sales from selling memory chips using 1T-SRAM technology. In sharp contrast, it now generates virtually all its revenue from licensing its technology and collecting royalties as customers use it in their products. Hence, those 80% gross margins.

Over 50 companies -- heavyweights like Fujitsu, NEC, Hitachi, Sony, LG Electronics, Broadcom and Marvell, to name only a few -- have paid anywhere from $80,000 to several million dollars, depending on how much custom-engineering Monolithic provides, to use the technology.

The rub has been that, so far, only 17 customers have actually designed 1T-SRAM into products and paid royalties. Heavily dependent on a few big customers and a few products, Monolithic's sales have gyrated wildly.

A big problem, Silvestri explains, was that, keen as customers were on the technology, in the fast-paced world of consumer electronics it was taking far too long -- from 18 to 24 months -- to license the technology, design it into a product and get the product out the door. The long process, moreover, usually involved a great deal of custom-engineering, which was not only expensive for the client, but meant Monolithic's small engineering staff was stretched thin working on even a few big projects.

In June, however, Monolithic began offering a pre-configured, off-the-shelf version of its technology, a family of Classic memory macros, as they are called, that can be quickly and easily designed into cellphones or networking gear with a minimum of customized tweaking.

These offerings cut the time from licensing to market in half, Silvestri says, and they sparked a slew of new orders in the final three months of last year. As a result, fourth-quarter bookings, he reports, were "very strong."

A good chunk of revenue from those bookings, however, since the Classic memory macros are new, will be deferred until the first and second quarters of 2006, so sales and earnings for last year won't be much to write home about. Specifically, on revenues of some $12 million, Monolithic probably lost about $3 million, or roughly a dime a share.

This year, however, on sales of $25 million-plus, the company should earn at least 20 cents a share. And in 2007, on sales of $40 million or so, net should come in around 40 to 45 cents a share.

Hedge-fund manager Neal Goldman of Manhattan-based Goldman Capital, who owns Monolithic and first told us about the stock, is looking for an even better showing. For '06, on sales of $25 million to $30 million, he sees profits of 25 to 35 cents. And for next year, on sales of $50 million-plus, his earnings estimate is 50 to 60 cents.

It's rare these days to find a company like Monolithic, with no debt, a fat bundle of cash, top-flight technology and bright earnings prospects. It's even rarer to find one, like Monolithic, where the stock is on the bargain counter.
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