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April 1, 2001

So Who Needs Profits?

By Omar Sacirbey

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  • So Who Needs Profits?

Earnings are not the Holy Grail of the stock performance.

Some Venture Capital-backed chip and circuit board stocks that have growth - but no earnings - have largely performed better than profitable companies in a similar group of VC-backed companies.

The good performers are among 10 VC-backed chip companies examined by The IPO Reporter: five performed above offering through midday trading on Feb. 22, while the full group were 1.5 percent above offering.

Of the 10, five posted losses last year but four of them were above offering. Four of the five that posted earnings were trading below offering. It is mostly a young group. Five of the companies were founded in 1997; three others in 1995.

Top of the Class

The leading performer Centillium Communications (Nasdaq:CTLM), makes chips that provide solutions for broadband related areas, including DSL and home networking.

Apparently, investors have bet on the explosive growth potential of the broadband market because the company posted $46 million in losses last year. It had $56.5 million in revenue. Centillium, founded in 1997, received its fourth and final infusion of venture capital in May 1999 - some $38 million from six investors. Centillium was trading at $31.06 on Feb. 22, about 63 percent above its May 24, 2000, offering price of $19.

The class of 1997 also produced the second-best performer of the group. Pixelworks Inc.(Nasdaq: PXLW) designs and develops complete system-on-a-chip solutions that enable the visual display of broadband content on computers and other electronic devices. Pixel had the most discounted offering of the group, at $10 on May 19. While its $17.06 price on Feb. 22 price was about 71 percent above offering, it was roughly half of what the company was trading after its lockup expiration in November. Pixel does, however, seem to be nearing profitability, posting losses of $2.79 million of $34.47 million in revenue for the first nine months of 2000.

To that end, Pixel announced a $7.5 million investment on Jan. 30 in Jaldi Semiconductor Corp., a privately held semiconductor start-up developing reconfigurable Digital Signal Processing (DSP) technology.

Conversely, Silicon Laboratories (Nasdaq:SLAB) was well below its offering price, despite posting profits of $14.02 million last year. Ditto for ChipPac (Nasdaq:CHPC) and Therma-Wave Inc. (Nasdaq:TWAV), which respectively posted some $9.35 million and $30.4 million in earnings for the nine months of last year ended Sep. 30 and Dec. 31.

Silicon Labs, a developer of integrated circuits for communications products that took in $13.7 million over two rounds in 1997 and 1998 from hometown backer Austin Ventures and five other investors, appears to be the victim of an overly aggressive offering price of $31. Through Feb. 22, the company was down 43.94 percent. Despite a more moderate price of $12, ChipPac, which only went through one buyout/acquisition stage round of $170 million in August 1999, was trading at just under $4, down more than 67 percent.

Therma-Wave, which manufactures thermal wave imaging devices for semiconductor manufacturing and testing, was at $11.69 as of Feb. 22, trading at nearly half of its Feb. 4, 2000 offering price of $20. The company took in moderate funding from Bain Capital (which was also in on the ChipPac round) and Sutter Hill Ventures in 1997.

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