For International Rectifier, All’s Right in Its End of Chip Industry
International Rectifier Corp., as even its name implies, isn’t in the sexiest end of the semiconductor industry. But dull is delightful these days for the company and its investors.
Bolstered by several new products, a resurgent semiconductor industry, in-house cost cutting and soaring demand for wireless phones and other electronic gadgets that use its chips, International Rectifier’s sales, profit and stock price have all been rebounding over the last few quarters.
The El Segundo-based company extended its bullish performance, reporting Thursday that earnings for its fiscal second quarter ended Dec. 31, excluding one-time items, soared to $12.4 million from $1 million a year earlier. Revenue jumped 29%, to $171 million.
Chief Executive Alexander Lidow said in a teleconference late Thursday that “we are raising our performance targets” and that the company now expects to “achieve record per-share earnings this calendar year.”
The stock has more than doubled in price in just the last 12 months, yet the six analysts who closely follow International Rectifier are all still recommending the stock.
The earnings were announced after the markets closed. Earlier Thursday, the stock had jumped $1.13 a share to close at $27.88 in composite trading on the New York Stock Exchange.
Processing and memory chips from the likes of Intel Corp. and Texas Instruments Inc. seem to grab all the headlines, but the chips International Rectifier makes play a crucial role as well: They govern the flow of power inside the growing number of digital phones, laptop computers and other electronic gear.
The company “is in one of the sweet spots of the semiconductor industry now,” said Jonathan Joseph, an analyst at Salomon Smith Barney Inc. in New York.
Basically, International Rectifier’s chips take the electricity coming out of a wall socket and manipulate it to meet the specific needs of, say, a personal computer or printer that doesn’t need that full, steady stream of power coming from the outside. The chips do the same for battery-powered equipment such as wireless phones, satellites, video-game players and a variety of automotive electronics such as power steering.
And in doing so, the company’s products help all that equipment operate more efficiently and with less heat, which in turn enables the electronics’ manufacturers to offer more functions inside each of their gadgets.
Which is why International Rectifier’s customers range from General Motors Corp.’s AC Delco electronics division to Motorola Inc., Sony Corp. and Lucent Technologies Inc., to name just a few.
The upswing is a welcome reversal for International Rectifier, which was founded in 1947 and has seen its fortunes vacillate with the up-and-down cycles of the semiconductor industry.
In its fiscal year ended last June, for instance, the company’s earnings (excluding one-time gains or charges) fell to $6.1 million from $16.5 million the previous year, as revenue dipped to $545 million from $552 million.
But the latter half of fiscal 1999 improved sharply from a year earlier, not only because of rising demand for International Rectifier’s chips, but also because widespread price-cutting in the industry ebbed, helping profit margins widen.
International Rectifier is run by a father-son team: co-founder and Chairman Eric Lidow, 87, and CEO Alexander Lidow, 45, a Caltech graduate who holds several patents himself on power-semiconductor technology.
Outside of El Segundo, the company has major plants in Temecula and in Tijuana, Britain and Italy. About 42% of its sales come from North America, and the rest from Europe and Asia.
The company’s main business, accounting for about two-thirds of its sales, are so-called MOSFETs, or metal oxide semiconductor field effect transistors. International Rectifier estimates it has 15% or so of the $3-billion worldwide market for the chips, but because it also owns key patents on the technology, the company figures it’s got a piece of 75% of the MOSFET chips sold annually.
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Power Surge
Shares of International Rectifier, an El Segundo-based maker of power-control semiconductors, have surged as the company’s sales and earnings have grown. Weekly closes and latest:
Thursday: $27.88, up $1.13
Source: Bridge
