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Power Semiconductors and Power Supplies PDF
Power Semiconductors and Power Supplies PDF
Power Semiconductors and Power Supplies PDF
Todd Cooper
Vice President
Power Electronics Analyst
(501) 377-2503
tcooper@stephens.com
Holman Harvey
Associate
(501) 377-8232
hharvey@stephens.com
September 2000
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TABLE OF CONTENTS
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Market Drivers .............................................................................................................................................48
Market Restraints .........................................................................................................................................49
High-Voltage Smart Power ICs........................................................................................................................49
POWER SEMICONDUCTORS CONCLUSION..........................................................................................49
Power Semiconductors Company Profiles .......................................................................................................51
Advanced Power Technology, Inc. ..................................................................................................................53
Cree, Inc. ..........................................................................................................................................................57
International Rectifier Corp..............................................................................................................................61
Power Integrations Inc. ....................................................................................................................................65
Semtech Corp. ..................................................................................................................................................69
TelCom Semiconductor....................................................................................................................................73
POWER SUPPLY FUNDAMENTALS..............................................................................................................77
PRODUCT PROFILE .........................................................................................................................................78
Electricity Review ............................................................................................................................................79
Why Do We Need Power Supplies?.................................................................................................................79
Types of Power Architecture............................................................................................................................80
AC/DC POWER SUPPLIES ...............................................................................................................................82
Switching vs. Linear Power Suppliers .............................................................................................................84
Efficiency .....................................................................................................................................................85
Size ...............................................................................................................................................................85
EMI and RFI.................................................................................................................................................85
Custom, Standard and Modified Standard Products.........................................................................................86
Output Segmentation........................................................................................................................................86
DC/DC CONVERTERS......................................................................................................................................87
TELECOM POWER PLANTS ...........................................................................................................................89
POWER SUPPLY INDUSTRY OVERVIEW....................................................................................................90
Intense Industry Fragmentation........................................................................................................................91
Barriers to Entry ...............................................................................................................................................93
Foreign Competition ........................................................................................................................................93
Continued Industry Growth..............................................................................................................................94
Market Segments..............................................................................................................................................96
Growth Opportunities by Power Supply Category...........................................................................................97
Increased Outsourcing......................................................................................................................................98
Consolidating Industry .....................................................................................................................................99
Other Market Dynamics .................................................................................................................................101
POWER SUPPLY SECTION CONCLUSION.................................................................................................102
Power Supply Company Profiles.......................................................................................................................103
Artesyn Technologies Inc...............................................................................................................................105
C&D Technologies.........................................................................................................................................109
Power-One, Inc...............................................................................................................................................113
Vicor Corp......................................................................................................................................................117
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Chart 8 Power Semiconductor Automotive Applications....................................................................................25
Table 2 North American Computer and Peripherals Power Semiconductor Market...........................................26
Table 3 North American Telecommunications Power Semiconductor Market ...................................................27
Table 4 North American Consumer Electronics Power Semiconductor Market .................................................28
Table 5 North American Industrial Power Semiconductor Market .....................................................................29
Chart 9 Power Semiconductor Market Segmentation..........................................................................................30
Chart 10 North American Power Semiconductor Market Percentage of Revenue by Product............................31
Chart 11 North American Power Transistor Market............................................................................................32
Table 6 North American Power Transistor Market ............................................................................................33
Chart 12 North American Thyristor Market ........................................................................................................35
Table 7 North American Thyristor Market..........................................................................................................36
Chart 13 North American Diode Market .............................................................................................................38
Table 8 North American Diode Market ...............................................................................................................39
Chart 14 North American Motion Control Power IC Market..............................................................................41
Table 9 Motion Control Power IC Market...........................................................................................................42
Chart 15 North American Power Conversion/Management IC Market...............................................................44
Table 10 North American Power Conversion/Management IC Market ..............................................................45
Chart 16 North American Smart Power IC Market .............................................................................................47
Table 11 North American Smart Power IC Market .............................................................................................48
Chart 17 Power Supply Devices ..........................................................................................................................78
Table 12 - AC Line Voltages Selected Countries................................................................................................80
Chart 18 Centralized Vs. Distributed Architecture..............................................................................................81
Chart 19 North American Consumption of Distributed Power Architecture......................................................82
Chart 20 Simple AC/DC Power Supply...............................................................................................................83
Table 13 Pricing Trends In AC/DC Power Suppliers..........................................................................................84
Table 14 Linear Vs. Switching Power Supplies ..................................................................................................84
Table 15 Output Segmentation ............................................................................................................................87
Table 16 DC/DC Converter Pricing Trends.........................................................................................................89
Table 17 Power Supply Industry..........................................................................................................................91
Table 18 Ten Largest North American Power Supply Companies* - 1999 Sales ...............................................92
Table 19 Largest Worldwide Power Supply Companies* - 1999 Sales ..............................................................92
Chart 21 Global Power Electronics Market .........................................................................................................94
Chart 22 Global Power Supplies Consumption ...................................................................................................95
Chart 23 Global Telecom Power Plant Consumption..........................................................................................96
Chart 24 North American Power Supplies Consumption by Market Segment....................................................97
Chart 25 North American Merchant Power Supplies Consumption....................................................................98
Chart 26 North American Power Supplies Consumption ....................................................................................99
Chart 27 Fragmented Merchant Power Supply Industry ...................................................................................100
Table 20 Recent Consolidation in The Power Electronics Industry ..................................................................101
Chart 28 North American Market Share Held by Top 10 Merchant Power Supply Manufacturers..................101
Appendix A Power Electronics Valuation Analysis..........................................................................................121
Appendix B Power SemiconductorS Comparative Analysis..........................................................................122
Appendix C Power Supply Manufacturers Comparative Analysis.................................................................123
Appendix D Glossary.........................................................................................................................................124
Appendix E North American Power Semiconductor Manufacturers.................................................................126
Appendix F North American Power Supply Manufacturers..............................................................................128
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EXECUTIVE SUMMARY AND INTRODUCTION
We believe that, over the next decade, one of the most robust investment sectors
in the economy will be the electric power industry. But we dont advise that you
run out and invest in your local power company. The electric utilities will have
Electric utilities are their role, but we suggest you focus on those companies that provide the power
not providing the type for the dot-coms. Were talking about companies that make products like power
of power that the semiconductors and superconductors, batteries and flywheels, ac/dc power
digital economy supplies and dc/dc bricks. These are the products that provide the ultra-clean,
requires ultra-reliable electricity consumed in the digital economy. We think well-run
companies that manufacture and sell these products successfully will offer the
astute investor the potential for exceptional returns, not unlike those that have
been experienced in the communications revolution.
In 1997 Stephens Inc. made the power electronics industry a focus of its equity
Our power electronics
research (see Chart 1). We define power electronics as the application of
research focuses
exclusively on power electronic devices and associated components to control, convert and condition
semiconductors and electric power. In other words, we have been following power supply
power supplies manufacturers and semiconductor manufacturers that focus on power
management applications.
Recently, Stephens Inc. placed even more emphasis on the power solutions area
by having analyst Steve Sanders and his team moved to cover a sector that we are
calling Emerging Power Technologies. The Emerging Power Technology sector
includes information management technologies, distributed generation, power
procurement, infrastructure enhancements and system integration. We at
Stephens Inc. are committed to helping our clients benefit from the exceptional
investment opportunities that we believe will materialize over the next few years
in the electrical power industry.
Chart 1
Stephens Inc. Power Solutions Focus
Power Solutions
Power Quality
and Reliability
Distributed
Power Generation
Supplies
Emerging Information
Power
Power Management
Electronics Technologies
Technology
Power
Semiconductors
Systems
Integrators
Infrastructure
Enhancement
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Stephens Inc. Power Solutions Research Group
We believe that the experience weve gained over the last three years following
the power electronics industry gives Stephens Inc. a unique perspective on this
space. We are not semiconductor analysts who have strayed into the power
semiconductor space, nor are we contract manufacturing analysts who have
recently discovered power supplies. We have come to the job focused on power
and the unique industry dynamics that it entails. There is no single strategy a
company can follow to become successful in this industry. However, there are
trends and market dynamics that should not be ignored by companies and
investors alike. By thoroughly understanding the market and its participants, we
plan to identify those companies that are best positioned to prosper in the power
electronics marketplace.
Due to the laws of physics, energy underpins any economy. In other words, you
cannot get something for nothing. The Internet has not changed the laws of
physics. Even cyberspace has an energy cost. Energy will continue to underpin
our economy in the 21st century, just as it did in the 20th. The last century
belonged to oil; this one belongs to electricity. The transformation is already
evident. Our economy today spends four times as much purchasing electricity as
oil.
The beginning of the last century saw an explosion of economic activity in the
creation of the automobile. One consequence of the rise of the automobile was
the creation of an enormous and complex oil-related industrial infrastructure to
fuel the engines in all kinds of vehicles. The creation of the automobile and the
infrastructure needed to support it are analogous to whats taking place in todays
digital age.
The engine of the digital age is the microprocessor. Its fuel is electricity. The
The engine of the proliferation of microprocessors and computers and the seemingly unending
digital age is the appetite for communications bandwidth is increasing the demand for reliable
microprocessor; the electricity. It takes a lot of clean, reliable electricity to process and move bits
fuel is electricity of information around. The sheer amount of electricity demanded by the
information economy is, in itself, a primary driver behind the changes occurring
in the electric power industry. But far more important than the steep increase in
the demand for electricity is the type of electricity the information economy
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requiresultra-clean, stable, and totally reliable. This type of electricity cannot
be delivered by the same old technologies on the same old power grid. A new
type of infrastructure is developing to support the digital economy. We will
examine both drivers, the increase in demand and the reliability issue, in more
detail.
The last non-extrapolated study that was conducted to ascertain exactly how
much electricity was being consumed by computers was done in 1995. Lawrence
Berkeley Labs reported that approximately 50 billion kWh in 1993 were
consumed in the commercial sector by PCs, computers and directly related
equipment such as monitors and printers. Since then:
It is estimated that the It is now estimated that 8% of the nations electric supply, or 290 billion kWh, is
Internet consumes 8% absorbed by the hardware of the Internet. When you consider a broader scope of
of the countrys all computers and related equipment, U.S. electricity consumption by the digital
electricity economy reaches 13%. There is simply no denying it, computers, and more
recently, the Internet, are driving up the demand for more electricity.
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Chart 2
Digital Economy Electricity Consumption
14%
12%
10%
8%
6%
4%
2%
0%
1978 1982 1986 1990 1994 1998
Reliable Power
Eight hours worth of power outages over the course of a year is an inconvenience
for you and me, but a financial nightmare for businesses in the digital economy.
Several industries A few industries have always required electricity that was more reliable than
have always required what comes off the grid. Hospitals, airports, military bases and phone companies
highly reliable power have always deployed generators and banks of batteries to provide standby
power. In the new digital economy, add to the list of companies already
requiring extremely reliable power the Amazons and AOLs of the world. And as
digital semiconductors (i.e., microprocessors and memory chips) and the Internet
penetrate deeper and deeper into our society, even old economy companies are
requiring more reliable power. Next will be our homes. The number of
commercial and residential devices and users that rely on digital semiconductors
and the Internet is growing exponentially.
For these applications, demand reliability only starts at 99.9999% (six nines). At
six nines the length of power outage is equivalent to only 30 seconds a year. At
seven nines, its only out for a few seconds, but thats still long enough to crash a
network. Only at the ninth and tenth nines is the power reliable enough for the
digital semiconductors that are at the heart of the digital economy.
The problem is that its hard to imagine the traditional electric utility grid ever
providing electricity that is much more reliable than 99.9%. The grid is simply
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The traditional electric too exposed to catastrophic events (i.e., bad weather, animals shorting out
grid is too exposed to transformers, and car - utility pole interactions). Its far too impractical and
catastrophic events to expensive to rebuild the grid to support the digital economy. To do that requires
provide highly reliable an array of systems and components that will reside on the customers side of the
power electric meter.
These systems and components include capacitors and inductors to fix problems
of milliseconds in duration; batteries, flywheels, and super-conducting coils to fix
outages ranging from seconds to a few minutes; and generators and turbines to
supply power for hours or days. The switch that links these systems together
seamlessly is the power semiconductor.
Expensive Power
Building reliability into the power grid is expensive, but how much will people
pay? What does it cost AOL if it is off-line for an hour? With some of the larger
communications companies billing customers in total at a rate of over $4 million
per minute, what will they pay to stay up and running? The questions are
rhetorical ones. The answer is: a lot.
We predict that, very According to the Gilder Groups inaugural Power Report, the total market for
soon, the aggregate electricity that is more reliable than 99.9% is approximately 20% of the total
profits of companies electricity market. As digital semiconductors and the Internet penetrate deeper
that provide reliable and deeper into the economy, demand for reliable power will continue to grow as
power will exceed the a percent of the total electricity market. We predict that, at some point in the not
aggregate profits of too distant future, the aggregate profits of the companies providing reliable
the nations electric power will exceed the aggregate profits of those companies/utilities providing
utilities
99.9% reliable electricity. And thats precisely why we think that, over the next
decade, one of the most robust investment sectors in the economy will be the
electric power industry.
This industry report is divided into two sections. First, we address the power
semiconductor industry. Well explore the various types of power
semiconductors, the market dynamics and growth rates, and the players. Second,
we address the power supply industry. Here too well explore the different types
of power supplies, the market dynamics and growth rates, and the players. After
years of evolutionary technological change, a few manufacturers of power
semiconductors and power supplies are making the revolutionary technological
changes necessary to take advantage of the vast market that is craving affordable
reliable electricity. At Stephens Inc., we want our clients to be prepared to profit
from the electric power revolution that is underway. This industry report has
been written for that purpose.
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POWER SEMICONDUCTORS FUNDAMENTALS
The switches are also used in the rectification process (turning alternating current
(ac) into direct current (dc) by chopping up an ac sine wave into small segments
that can then be reconfigured into a dc sine wave). A third application for
advanced high frequency switches is to generate plasma and lasers. Plasma and
lasers are produced by switching the polarity of a magnetic field at an extremely
high speed. This in turn excites atoms that can then be manipulated to produce
the desired laser or plasma process.
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result of all of these inefficient motors is that approximately $72 billion of
electricity is wasted every year.
Power We believe that the power semiconductor has come of age. These devices
semiconductors are interface with the various technologies required to deliver reliable power, and
poised to change the they are capable of dramatically reducing the worlds energy consumption. The
electric economy power semiconductor is indeed poised to change forever the $500 billion-a-year
kilowatt-hour economy.
The Power Semiconductor section of this Industry Report is divided into four
segments. First, we take a very elementary look at semiconductor fundamentals.
We address how power semiconductors work, how they are made and what they
are made of. We have included this section to hopefully take some of the
mystique out of semiconductors. Second, we focus on the analog segment of the
semiconductor market as opposed to the digital semiconductor market. Power
semiconductors are a subset of analog or linear semiconductors. Third, we zero
in on the power semiconductor market, providing growth rates and market trends
for the overall North American power semiconductor industry as well as seven
individual product categories. We conclude by providing the investment
highlights of each of the power semiconductor companies that we currently
cover.
SEMICONDUCTOR BASICS
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Chart 3
Electrical Conductivity of Selected Materials
1010
Metals
Copper
Iron
Mercury
106
102 Germanium
Electrical Conductivity
Semiconductor
Semiconductors
conductivity lies Selenium
somewhere between Silicon
that of conductors 10-2 Boron
and that of insulators
Quartz
10-10 Porcelain
Mica
Insulators
10-14
Paraffin
10-18 Diamond
A second reason for using silicon is that it is inexpensive and easily obtained
from melting sand. Although silicon is the second most abundant element in the
earths crust and a component in numerous compounds, it never occurs in its pure
state. Single-crystal silicon used in device production is a man-made material.
The process of producing device-quality silicon first involves separating it from
compounds and then purifying the separated material. Chart 4 illustrates this
process.
Chart 4
Summary of the Process Employed to Produce Ultrapure Silicon
Very Ultrapure
SiCi4 Ultrapure
Silica Impure Polycrystalline
(Liquid) SiCi4
Silicon Si
Reduced in Reduced in
Presence of Chlorinated Distilled, etc. Hydrogen
Carbon Atmosphere
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The third reason for the commercial use of silicon in semiconductors is the
exceptional purity of the processed material. Modern semiconductors are some
of the purest solid materials in existence. In silicon, for example, the
unintentional content of dopant atoms (impurities) is typically less than one atom
per 109 silicon atoms. To better understand this extraordinary level of purity,
imagine a forest of maple trees planted from coast to coast, border to border, at
50-foot centers across the United States (including Alaska and Hawaii). An
impurity level of one part per 109 would correspond to finding about 25
crabapple trees in the maple tree forest covering the entire United States!
Pure silicon has 1023 atoms per cubic centimeter. Each atom has four electrons
that bond with its four nearest neighbors. In nature, the crystalline molecular
structure of silicon is obviously three-dimensional. As a visual aid, a two-
dimensional silicon lattice is shown in Chart 5.
Chart 5
Silicon Molecular Structure
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bond or hole. The hole is positively charged and, thus, attracts negatively
charged electrons. By creating an environment within the semiconductor
material in which electrons are released and holes are created, one can
manipulate the flow of electrical current through the material.
The fabrication The basic component in the manufacture of power semiconductor devices is a
process starts with a thin, circular crystalline silicon wafer, typically six to eight inches in diameter.
silicon wafer that is First, a thermal oxide is grown that prevents carriers within the silicon from
typically six to eight diffusing to other parts of the device. The oxidation process (1) is accomplished
inches in diameter
by reacting silicon with either oxygen gas or water vapor at high temperatures.
The next step is the lithography process (2), which is performed to open
diffusion holes in the oxidation layer. Lithography basically involves
removing a portion of the oxidation layer and exposing the silicon, thus, focusing
the carrier action to the portion of the device where the silicon is exposed.
The chip making process is complete when the finished wafer is cut into
individual devices, or dies. A die bonder then takes each good die and
encapsulates it in a plastic or metal package. The package is then moved to a
wire bonder. To create the electrical connection necessary for the device to
function, very fine gold or aluminum wire is bonded between the die and
corresponding leads on the package.
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The wafer is cleaned throughout the manufacturing process. To ensure that
microscopic particles dont contaminate the wafers undergoing fabrication,
semiconductors are manufactured in clean roomssmall windowless spaces
fitted with superfine air filters. Human presence is minimized in the clean room
where production workers wear a bunny suit that covers their entire body.
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Chart 6
The Fabrication Process
Start
Silicon
SiO 2
(1) Oxidation
Silicon
SiO 2
SiO 2 SiO 2
(2) Lithography #1
Silicon
Phosphorus
Al
SiO 2 SiO 2
(4) Metalization
+
n
Silicon
SiO 2 SiO 2
(5) Lithography #2 +
n
Silicon
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DIGITAL VS. ANALOG
Semiconductors are typically classified into two major categories: digital and
Power analog (also know as linear). Digital semiconductors process information in
semiconductors are binary numbers, the basic substructure of computer language. Therefore, digital
typically considered
to be analog
semiconductors are normally associated with computer applications. There are
semiconductors three different types of digital semiconductors: 1) microprocessors, which are
used for control and computing tasks; 2) memory chips, used to store
programming instructions and data; and 3) logic chips, which are employed to
manage the interchange and manipulation of digital signals within a system.
The analog semiconductor sector shares many growth drivers with the broader
semiconductor market. However, the analog market has some distinct
characteristics that we believe make the sector a particularly attractive investment
opportunity: steady growth, broad-based demand, barriers to entry, long product
life cycles, low capital intensity, steady pricing, and high profitability.
Analog chips are found in all electronic equipment. Even a PC, the ultimate
example of digital technology, requires analog chips to power the various
components of the PC, to generate sound, graphics, and video, and to move
Analog
semiconductors are information back and forth among the microprocessor, memory, hard disk,
especially prevalent display, and printer. In addition to computer applications, analog semiconductors
in consumer are prevalent in consumer electronics, telecommunications equipment, and
electronics and industrial and automotive applications. Digital semiconductors are much more
telecommunications dependent on the computer industry. While we expect the PC sector to grow
equipment nicely through the end of the decade, driving substantial chip growth, the non-
analog semiconductor segments are heavily exposed to any potential PC
downturn. The analog segment is far more diversified.
Most analog standard products are sold in relatively small volumes. This is
because analog semiconductors have many different critical specifications, and
any particular application is likely to require its own combination of those
specifications. For example, one application may require a higher speed while
another requires better consistency of performance over a range of temperatures.
It is usually impossible to design an analog chip that will optimize all of the
parameters simultaneously. Therefore, the manufacturer must design different
semiconductors for each application. Most semiconductor companies offer a
wide range of these products. The differences within some product families may
be minimal, but they are important to the designers that use them in their
products.
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Long Product Life Cycles
Analog chips are commonly sold in reasonable volumes for eight to ten years.
Replacing an existing This pattern is very different from almost any type of digital chip. A
analog part is often
microprocessor that sells in volume for more than a year or two is a rarity. Again,
an expensive
proposition for an the wide range of critical performance parameters is the key reason for analog
OEM product longevity. Once an analog chip has been designed for an electronic
product and it performs as desired, the end-product designer is strongly
disinclined to replace it.
With typical analog chip volumes being comparatively smaller and it being
difficult to enter existing markets, analog companies are generally better off
designing new parts of their own rather than trying to imitate a competitors
product. Most analog companies make a point of citing the percentage of their
business that comes from proprietary parts.
Manufacturing Differences
Analog and digital chip manufacturing are driven by different parameters. The
digital world requires high integration, small feature sizes and high volumes. The
Analog
manufacturing is analog markets requires low integration, larger feature sizes and low volumes of
about flexibility, not many different parts. Because analog parts are more reliable with larger feature
about leading-edge sizes, small feature size can actually be a disadvantage for analog
technology semiconductors. Additionally, an analog plant does not have the luxury of
locking down on a single manufacturing process and then running it in high
volumes. The wide range of analog parts typically requires multiple
manufacturing processes.
Steady Pricing
Given the above factors, it is not difficult to understand why pricing tends to be
relatively stable in the analog sector.
Little competition for specific parts: Analog companies spend their R&D
efforts on new products, not on imitating competitors products.
Little capacity utilization pressure: The low capital intensity of the analog
business keeps fixed costs relatively low. Consequently, analog companies
are far less tempted to cut prices during periods of weaker demand simply to
keep capacity utilization high up.
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Low-cost impact on final systems: The average selling price for an analog
integrated circuit is only around $2.00. Consequently, the cost of the analog
content of the final product is low compared with many other components.
OEMs can generally save themselves more money by concentrating their
negotiating skills on non-analog areas.
These two general groups can be further broken down into product categories.
Later in this report we will look at the projected growth rates and analyze the key
market trends impacting each of the individual product categories. We will
begin, however, by focusing on the industry as a whole.
History
The power semiconductor industry has grown at an accelerating rate since its
The first power inception in the 1950s. The first power semiconductor devices were simple
semiconductors were diodes and thyristors. During the 1950s and 1960s, research teams at major
simple diodes electronics companies like Motorola and Bell Laboratories, now part of Lucent,
developed additional power discrete products as they investigated different
applications for the new semiconductor devices. By the end of the 1960s,
discrete power semiconductors were commonplace in consumer electronics and
lighting applications.
The first ICs appeared in the late 1960s as engineers began to integrate bipolar
power transistors and small signal devices onto a single chip. Advances in IC
design continued throughout the 1970s. In the early 1980s, IGBTs and
MOSFETs were developed for higher power applications. Today, firms continue
to experiment with new design and fabrication techniques to increase the power-
handling capabilities of power semiconductors and to raise the level of
integration possible in power ICs.
Competitors
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Overall Industry Growth
Chart 7
North American Power Semiconductor Market
$9 18
$8 16
$7 14
$6 12
$5 10
$4 8
$3 6
$2 4
$1 2
$0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
According to Frost and Sullivan, the devices that are expected to experience the
highest growth are discrete insulated gate bipolar transistors (IGBTs), discrete
metal-oxide semiconductor field effect transistors (MOSFETs), smart power ICs
and power conversion/management ICs. The growth for these and other power
semiconductor devices will be driven by several events, including:
The introduction of new electronic products and the increase in the electronic
Strong end-market
content of existing products, devices and systems.
growth is expected to Strong demand for voice and data communication products.
drive the growth of Strong demand for portable computing devices.
power Strong demand for digital consumer electronic devices.
semiconductors Stability in the prices of power discrete devices and the likely increase in the
prices of power ICs.
Steady increase in the electronic content of automobiles.
Stephens Inc. 21
A Cyclical Industry
In the past month, many semiconductor company stocks have taken a hit due to
concerns that the semiconductor industry has hit its high and other company-
specific reasons. We disagree. We think that there is ample room for growth in
both the overall semiconductor industry and, more specifically, the analog and
power semiconductor markets. According to the Semiconductor Industry
Association, analog sales are expected to grow almost 35% in 2000, faster than
the overall semiconductor market. Starting in 2001, analog sales should grow at
a comparable rate to that of the rest of the industry. We believe that now is an
excellent time for investors to build positions in anticipation of strong results in
through 2001 and beyond.
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Establishing a competitive pricing strategy - In both power discrete markets
and IC markets, end-users are always looking for the best price. Customer
interviews indicate a very low loyalty level. During the semiconductor industry
downturn from 1996 to 1998, manufacturers were forced to vary prices,
sometimes by up to 25%. In 1999, the demand picture was much stronger, and
the near-term pricing outlook is pretty stable. However, OEMs are continually
looking for cheaper prices, and suppliers must have strong pricing strategies
across their entire product classes.
Demand for analog engineers - For the last twenty years, the majority of
engineering students and college engineering curriculums have gravitated
towards the high-tech digital fields. Consequently, a severe shortage of quality
analog engineers has developed within the industry. A power semiconductor
manufacturers most valued resource is its engineers.
Stephens Inc. 23
FORECASTS BY END-MARKET
Automotive
The automotive industry is one of the fastest growing market segments for power
semiconductors. Revenues from the North American automotive industry totaled
$1.1 billion in 1999. This figure is expected to grow to approximately $2.0
billion in 2006, representing a CAGR of 9.2%.
Table 1
North American Automotive Power Semiconductor Market
Revenue
Revenue Growth Rate
($ Million) (%)
1996 $818.2 NA
1997 888.6 8.6
Power semiconductor 1998 956.0 7.6
sales to the
1999 1,052.0 10.0
automotive market
are projected to have
2000E 1,163.5 10.6
a CAGR of 9.2% 2001E 1,292.3 11.1
through 2006 2002E 1,409.7 9.1
2003E 1,531.4 8.6
2004E 1,652.5 7.9
2005E 1,807.2 9.4
2006E 1,952.6 8.1
Driving the growth is the simple fact that more and more power semiconductor
devices are being integrated into automotive electrical systems. Additional
trends in this segment include 1) the use of higher battery voltages to optimize
the efficiency of the electrical system, 2) the demand for device loads driven with
both ac and dc voltages, and 3) the desire to individually match voltages with
loads to optimize efficiency and performance. Power semiconductors will be
used in body electronics (power windows, doors, mirrors, etc.), power train
systems, electronic steering systems, and motor drives for electric vehicles.
Power transistors Power transistors stand to benefit the most from the automotive industry growth.
should benefit the We see strong growth coming in 2004 to 2006 as electric vehicles, which use
most from the growth IGBTs and MOSFETs, become increasingly attractive. Problems that have been
of the automotive associated with electric vehicles include low maximum speed, limited driving
industry range, and lengthy charging downtime. However, the industry is making steady
progress at solving these problems.
Stephens Inc. 24
Chart 8
Power Semiconductor Automotive Applications
Climate Control
Multiplex Wiring Electric Power Steering
Voltage Regulator
Active Suspension
Ignition Control
Power Windows
Cruise Control
Dashboard Electric Vehicle
The automotive
applications segment Keyless Entry Air Bags
is one of the fastest Power Seats
growing segments Traction Control
within the power Headlamp Control
semiconductor
Power Door Locks
industry
Windshield Wipers
Power Antenna
Anti-Lock Braking
High Intensity Lighting
Transmission Control Electronic Fuel Injection
The North American computer and peripherals industry consumed $649.1 million
in power semiconductors in 1999. This amount is forecast to increase to just
over $1.1 billion in 2006, representing a CAGR of 7.9% (see Table 2). The
growth in this market will be driven by strong demand for portable devices and
digital consumer electronic devices. According to eTForecasts, overall PC
revenue will increase from approximately $226 billion in 1999 to $356.9 billion
in 2005. Although the growth rate should decline in the U.S. and Western
Europe, the rest of the world has less product penetration, and thus ample room
for strong growth remains.
Stephens Inc. 25
Table 2
North American Computer and
Peripherals Power Semiconductor Market
Revenue
Revenue Growth Rate
Year ($ Million) (%)
1996 $533.1 NA
1997 583.8 9.5
1998 582.7 (0.2)
1999 649.1 11.4
2000E 732.6 12.9
2001E 821.9 12.2
2002E 903.6 9.9
2003E 979.3 8.4
2004E 1,031.0 5.3
2005E 1,076.8 4.4
2006E 1,107.8 2.9
Communications
Stephens Inc. 26
Table 3
North American Telecommunications
Power Semiconductor Market
Revenue
Revenue Growth Rate
Year ($ Million) (%)
1996 $590.2 NA
1997 694.0 17.6
1998 757.9 9.2
1999 912.0 20.3
2000E 1,120.4 22.9
2001E 1,362.6 21.6
2002E 1,626.5 19.4
2003E 1,840.3 13.2
2004E 2,033.8 10.5
2005E 2,198.7 8.1
2006E 2,359.0 7.3
Consumer Electronics
Sales of digital
cameras, game Revenues from the consumer electronics industry were $733.8 million in 1999.
stations, and DVDs The segment is forecasted to grow at a CAGR of 6.6% through 2006 (see Table
are driving the 4) to approximately $1,147.6 million in 2006. The year 1999 was a good one for
growth in the
the consumer electronics market, driven by increasing demand for digital
consumer electronics
industry cameras and game stations. Other areas of strength included DVDs and
digital/audio video devices.
Stephens Inc. 27
Table 4
North American Consumer
Electronics Power Semiconductor Market
Revenue
Revenue Growth Rate
Year ($ Million) (%)
1996 $637.1 NA
1997 679.3 6.6
1998 678.0 (.2)
1999 733.8 8.2
2000E 804.4 9.6
2001E 881.4 9.6
2002E 951.8 8.0
2003E 1,012.2 6.4
2004E 1,066.3 5.3
2005E 1,106.9 3.8
2006E 1,147.6 3.7
Industrial
Stephens Inc. 28
Table 5
North American Industrial
Power Semiconductor Market
Revenue
Revenue Growth Rate
Year ($ Million) (%)
1996 $774.6 NA
1997 826.2 6.7
1998 834.1 1.0
1999 895.0 7.3
2000E 967.2 8.1
2001E 1,049.0 8.5
2002E 1,132.6 8.0
2003E 1,209.3 6.8
2004E 1,278.2 5.7
2005E 1,340.3 4.9
2006E 1,402.7 4.7
Stephens Inc. 29
ANALYSIS BY PRODUCT CATEGORY
There are a number of ways to segment the power semiconductor market. Chart
9 illustrates how we have chosen to segment the market for the purpose of this
report.
Chart 9
Power Semiconductor Market Segmentation
Motion Control
Power Transistors Rectifiers Thyristors
Power Power ICs
semiconductors are
broken into two main
Metal-Oxide Field
segments, discretes Effect Transistors Rectifer Diode
Silicon Controlled Power Management
and integrated Rectifiers SCRs ICs
MOSFETs
circuits
Smart Power
Bipolar Transistors Schottky Rectifier Triacs
ICs
Insulated Gate
Gate Turn-Off
Bipolar Transistors
Thyristors GTOs
IGBTs
Thyristor/Diode
Module
Source: Stephens Inc.
Stephens Inc. 30
Chart 10
North American Power Semiconductor
Market Percentage of Revenue by Product 1999 Estimates
Transistors
32%
Integrated
Circuits
51%
Rectifiers
12%
Thyristors
5%
Power Transistors
Stephens Inc. 31
Chart 11
North American Power Transistor Market
$2,500.0 7,000
6,000
$2,000.0
5,000
$1,500.0
4,000
3,000
$1,000.0
2,000
$500.0
1,000
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
Source: Frost & Sullivan
The main drivers in the growth of the power transistor market for the coming
The wireless market years should be the strong growth in the mobile/wireless industry, the continued
has contributed to the increase of electrical content in automobiles, and the growing need for mobile
strong growth in the
Internet connectivity which is fueling the growth for portable computing devices.
transistor market
The wireless market has been a strong growth driver for transistors, especially
MOSFETs, the past few years. Frost & Sullivan predicts an accelerating growth
rate in this market with a 2000 2002 CAGR approaching 25%. On the
automotive side, transistor growth should be driven by applications such as
power windows, doors, mirrors, seats and sunroofs. Power train systems also use
transistors for ignition and fuel injection systems.
Stephens Inc. 32
Market Trends
Table 6 shows the percent of revenues by product type of the North American
transistor market.
Table 6
North American Power Transistor Market
(Percent of Revenues by Product Type)
The MOSFET market represents the largest product segment within the total
power transistor market. In 1999, MOSFET revenues were $780 million, or
MOSFETs are the approximately 57.6% of North American transistor revenues. MOSFET sales are
largest product expected to be strong due to strong demand from the communications and
category in the power automotive markets. Additionally, MOSFETS continue to gain market share by
transistor market replacing bipolar transistors in low to medium power applications. The second
largest market is the more mature bipolar transistor market, which has thus far
faced heavy competition from the newer IGBTs and MOSFETs. However, in
1999, bipolar transistors revenue increased to $430 million because of
competitive pricing relative to MOSFETS and IGBTs.
We expect that there will still be market demand for the bipolar transistors in low
to medium frequency applications but expect the bipolar transistors to lose
market share going forward. The newest product category, the IGBT, has
enjoyed rapid growth in the last few years. In 1999, IGBT sales equaled $145
million, and Frost & Sullivan expect this figure to grow to approximately $260
million by 2006. The continued growth is attributable to an increasing
price/performance ratio that should allow for further penetration into high-power
applications.
In 1999, the average selling price for power transistors was approximately $0.40
per unit, down from $0.48 in 1996. The decline was in response to excess
manufacturing capacity in all three transistor product types. However, the price
decline in 1999 was much less than that of the two previous years due to the
strong demand for transistors during the year. We expect prices to remain stable
for the next two to three years due to robust market demand and tightening
Stephens Inc. 33
capacity, but then decline again as manufacturing capacity outpaces demand
from 2003 through 2006.
Market Drivers
The primary market driver for the power transistor market continues to be the
As transistor growth of its end-markets. As mentioned above, there are three main markets
technology continues
that should drive growth for the next five to seven years: mobile/wireless
to improve, new
markets will become
communications, automotive, and the need for mobile Internet connectivity,
available which in turn drives the growth of portable computing devices. Other markets
include the power supply industry, which is expected to grow in the low double-
digit range, and the motor drives industry, which should have continued steady
growth.
Market Restraints
Internal competition Another primary restraint to growth is internal market competition among
between product product types. IGBTs and MOSFETs compete against each other in the power
categories represents supplies and portable electronics markets. MOSFETs are further encroaching on
the greatest market bipolar transistor markets in automotive and consumer electronics applications.
restraint for power As a result, the new MOSFET and IGBT products should significantly outpace
transistors the growth of the older bipolar transistors.
Pricing is another factor that could affect revenues and profit margins going
forward. Pricing is a factor due to intense competition among vendors within the
transistor market. Over forty companies compete in this market. Those
companies that manufacture low power transistors targeting high volume
applications are especially sensitive to price. This would include most of the
larger manufacturers like International Rectifier, ST Micro Electronics, Texas
Instruments, Fairchild and ABB. Because of their pricing sensitivity, these
companies are also more susceptible to the whims of the semiconductor cycle.
During 1999, the semiconductor cycle was strong, and consequently, pricing was
relatively firm. Companies that focus on higher power niche applications, like
Advanced Power Technologies, Silicon Power and Dynex Power, typically fare
better than the commodity manufacturers during cyclical downturns.
Stephens Inc. 34
Thyristors
The four primary thyristor product segments are silicon controlled rectifiers
Thyristors act as (SCRs), triacs, gate turn-off thyristors (GTOs), and thyristor/diode modules.
switches in very high Together, these four product sub-categories accounted for $222.3 million in
power applications
revenues in 1999. The market is expected to grow a modest 3.3% per year to
$279.6 million by 2006.
Chart 12
North American Thyristor Market
$300.0 900
800
$250.0
700
$200.0 600
Thyristors are not
expected to grow as 500
fast as the overall $150.0
400
power semiconductor
market $100.0 300
200
$50.0
100
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
Market Trends
Table 7 shows the percent of revenues by product type of the North American
thyristor market.
Stephens Inc. 35
Table 7
North American Thyristor Market
(Percent of Revenues by Product Type)
As illustrated in Table 7, the SCR market is the largest product segment within
the power thyristor market. The GTO market should come under the most
pressure because of the growth in the thyristor/diode modules in the industrial
market, where increased functional integration and transient voltage spike
suppression are key.
When the thyristor market was at its peak in 1995, the average selling price was
The pricing decline in
roughly $0.45 per unit. By 1999, the average selling price had dropped to $0.35
thyristors is expected
to ease in the coming
per unit. In the short term, prices are forecasted to decrease to $0.32 per unit by
year 2002. The expected decline is due to the decrease in sales of the higher-priced
GTO thyristors. After 2002, prices are expected to remain stable or inch up
slightly through 2006.
Market Drivers
A second market driver for thyristors is the strong growth in the consumer
electronics market. Strength in the U.S. economy is fueling demand for products
such as ovens, washers, dryers, coffeepots, and other white goods, for which
thyristors are ideally suited. One trend within this market is the move towards
increased portability. This trend should support the growth of the thyristor
module market versus discrete thyristors.
Stephens Inc. 36
New thyristor variations are being designed that are getting a lot of attention
from end-users. These products include the MOS-controlled thyristor (MCT),
the fast turn-off thyristor (FTO) and the MOS turn-off thyristor (MTO). All three
devices are very high-power devices aimed at traditional GTO and high power
IGBT applications. These new devices possess improved performance
characteristics and will be cheaper to manufacture in the near future.
Market Restraints
While the maturity of thyristor design has ensured its long-term use, end-users
have cited a number of design-inherent problems associated with thermal cycling
and switching losses. Even the new thyristor variations such as the MCT and
MTO do not eliminate such design-inherent difficulties for end-users. Once
again, the IGBT can potentially capture a part of this market as a thyristor
substitute because of its lower switching loss and improved thermal cycling
characteristics. Because of these design strengths, IGBTs are expected to
continue to make strong in-roads into markets traditionally dominated by
thyristors. However, in the short term, the new thyristors should maintain the
products overall market share.
Rectifiers
Rectifiers are the largest segment in the diode family. The diode is the simplest
electronic switch. It is uncontrollable in that the on and off conditions are
determined by voltages and currents in the circuit. Current easily flows in one
direction while it is blocked in the other.
Rectifier diodes and The two primary types of rectifiers are rectifier diodes and Schottky diodes.
Schottky diodes are Together, these two product sub-categories accounted for $491.6 million in
the two main types of revenues in 1999. The market is expected to grow at 5.8% per year to $731.0
rectifiers million by 2006 (see Chart 13).
Stephens Inc. 37
Chart 13
North American Diode Market
Revenues (M illions) Units (M illions)
$800.0 300
$700.0
250
$600.0
200
$500.0
$400.0 150
$300.0
100
$200.0
50
$100.0
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
Source: Frost & Sullivan
Market Trends
Table 8 depicts the percent of revenues by product type of the North American
diode market.
Stephens Inc. 38
Table 8
North American Diode Market
(Percent of Revenues by Product Type)
Rectifier Schottky
Diodes Diodes
Year (%) (%)
During 1999, the main end-use groups for rectifiers were industrial (32.3%),
automotive (19.6%), communications (17.3%), and consumer electronics
(14.6%). End-users are demanding faster recovery functionality and physically
smaller diodes. Faster recovery functionality means greater energy efficiency
and the ability to handle higher frequencies like those demanded by the new
Pentium chips. Additionally, as portable electronics like cellular phones get
smaller and smaller, device size must decrease.
As is shown in the above table, Schottky rectifiers are estimated to grow from
Due to demand from
approximately 28% of total rectifier revenue in 1999 to around 35% by 2006.
high-growth markets
such as
This is due to the use of Schottky rectifiers in fast-growth markets like
communications, automotive, communications, and portable electronic devices. The growth for
Schottky diodes the Schottky diodes is expected to be the greatest in 2000 2002, and then slow
should increase their from 2003 through 2006. The slowing growth from 2003 2006 is due to an
market share expected slowdown in the communications market and the maturation of digital
electronic and portable computing devices.
From 1996 to 1999, rectifier average selling price declined from $0.103 to
$0.089, primarily due to excess capacity across all product segments. The
current pricing has affected margins to the extent that any further decline in
pricing would have serious repercussions on margins. From 2000 through 2006,
Frost & Sullivan expects ASPs to increase slightly due to the growth of higher-
priced Schottky diodes and ultra-fast diodes.
Market Drivers
IGBTs require fast recovery diodes in order to function properly. The high rates
of growth of IGBTs should fuel the complementary growth of the diodes
markets. The fact that IGBTs continue to gain market share from traditional
thyristors should also help fuel rectifier growth.
Stephens Inc. 39
Growth in rectifiers is tied to the growth in the general electronics market. In the
electronics market, a new product with increasing capabilities seems to replace
an older model, almost on a daily basis. Because rectifiers are the solid-state
device found in almost every power circuit, demand should continue to increase
for rectifiers.
Market Restraints
As with most standardized and mature products, price competition in the rectifier
Like other commodity market is severe. The average selling price of this product is $0.089 per unit,
products, pricing is a with very slim margins. While this pricing environment may lead to increased
primary issue in
unit sales, it does not necessarily translate into increased revenue and
purchasing decisions
profitability.
In 1999, motion control power ICs accounted for about $355.0 million of overall
power semiconductor sales. By 2006, the North American motion control power
IC market is forecasted to be $689.7 million. From 1999 through 2006, the
CAGR for this market is expected to be 10% (see Chart 14).
Stephens Inc. 40
Chart 14
North American Motion Control Power IC Market
$800.0 300
$700.0
250
$600.0
200
$500.0
$400.0 150
$300.0
100
$200.0
50
$100.0
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
The North American motion control power IC market is highly competitive with
approximately 40 companies jockeying for position. There are, however, four
main companies that dominate the market: National Semiconductor, ON
Semiconductor, ST Microelectronics, and Toshiba Semiconductor. In sum, these
four control approximately 45% of the market.
Stephens Inc. 41
Market Trends
Table 9
Motion Control Power IC Market
(Percent of Revenues by End-User Industry)
The market share for the motion control power ICs by industry is expected to
remain relatively stable over the next several years. The automotive industry
should gain market share going forward due to the increasing electrical content in
automobiles. The communications sector is also expected to drive the motion
control power IC market, primarily from demand for mobile communications.
Other trends in this market include the continual reduction in package size,
circuits with improved heat dissipation, and the integration of multiple drivers
and protective circuitry. For example, the integration of sensors with motion
control power ICs is a mature technological trend. The advantage of this
technological innovation is that it conserves board space and development costs.
Prices in the motion After relative price stability in 1997 and 1998, motion control IC prices increased
control IC market to $2.65 per unit in 1999 due to strong demand. We expect further price
should continue to increases through 2002 as more functionality is added to the IC. We are looking
increase going forward for total price appreciation of around 9% from 1999 through 2006.
Market Drivers
Stephens Inc. 42
Adding additional Motion control ICs sell better when they are protected from power transients.
functionality to Transient protection takes place at the board level rather than the chip level.
motion control Transient protection is not a motion control-specific driver; however, transient
devices increases protection boosts product demand by increasing the probability of a longer IC life
demand
in harsh electrical environments.
Motion control power ICs are increasingly being designed to the specific
requirements of end-user industries. This trend is driving the quality and range
of technical innovation in motion control ICs.
Market Restraints
Motion control ICs generate unwanted heat during their operating cycle, which
negatively affects the overall operating characteristics of the circuit. The effects
of too much heat include interference with other circuits, which could in the
worst case cause the failure of the circuit.
A second restraint is that there is a void in motion control ICs targeting high
voltage and high current markets. Demand for circuits that can handle 1,200
volts and over 30 amps is high, but there are no products addressing this need.
This market is still handled by discrete devices.
The application of motion control power ICs only to motion control functions
limits market opportunities. Companies are adding extra functionality to motion
control devices as a means to extend their utility beyond motor control and boost
revenues.
Stephens Inc. 43
Chart 15
North American Power
Conversion/Management IC Market
$2,000.0 1,200
$1,800.0
$1,600.0 1,000
Power management
ICs are one of the $1,400.0
fastest growing 800
segments, with a $1,200.0
CAGR estimate $1,000.0 600
through 2006 of 11% $800.0
400
$600.0
$400.0 200
$200.0
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
Source: Frost & Sullivan
Market Trends
Table 10 shows Frost & Sullivans forecast of the percent of revenue by industry
category.
Stephens Inc. 44
Table 10
North American Power
Conversion/Management IC Market
(Percent of Revenues by End-User Industry)
The desire to extend In 1999, the weighted average unit-selling price for power management ICs was
the battery life in $1.65 per unit, an increase from $1.50 in 1996. The increasing price was due to
portable electronics is the strong demand exhibited. Looking forward through 2002, pricing should
driving the need for continue to improve. The strong demand could cause component shortages, most
efficient power likely in communication and portable device applications. However, prices
regulation and should stabilize after 2002 as ample capacity is brought on-line. Frost & Sullivan
control forecasts power management ICs to have a sales price of around $1.93 per unit in
2006.
Stephens Inc. 45
Market Drivers
Market Restraints
At this time, there is a supply shortage for power management ICs due to the
strong demand from the communication and portable electronic market segments.
Although manufacturers are in the process of expanding capacity, meaningful
capacity is not expected to hit the market until the end of 2001. As a result,
supply shortages will likely occur between now and 2002, which will constrain
the growth rate of power management ICs.
Additional costs are Power management ICs produce unwanted heat during their operating cycle. This
often incurred to heat may interfere with other circuit components, negatively impacting their
dissipate excess heat performance and/or generating circuit failure.
Smart Power ICs are defined as ICs that combine mixed-signal power drivers
with mixed signal and logic control circuitry on a monolithic wafer or chip.
Smart Power ICs have traditionally been devices that integrate low-voltage (up to
The definition of 100V) power MOSFETs with control circuitry. This definition has been changed
smart power ICs since the early 1990s because it limited the market to a few select applications,
continues to evolve such as motor drives and power supplies. Today, smart power ICs contain
complex circuitry such as motor control systems, solenoid drivers, step-up
converters, microprocessor interfaces, and voice circuits. Other possible
applications include office equipment, portable electronics, telecommunications,
white goods, and automotive applications.
In 1999, smart power ICs sales totaled an estimated $908.0 million. In 2006, the
North American smart power IC market is forecast to be $2.1 billion (see Chart
16). Frost & Sullivan expects the CAGR for this market to be 12.9% from 1999
to 2006.
Stephens Inc. 46
Chart 16
North American Smart Power IC Market
$2,500.0 700
600
$2,000.0
Texas Instruments, 500
ON Semiconductor, $1,500.0
and ST 400
Microelectronics are
the three main $1,000.0 300
players in the smart
200
power IC market,
controlling 37% of $500.0
100
the market
$0.0 0
2000E
2001E
2002E
2003E
2004E
2005E
2006E
1996
1997
1998
1999
Source: Frost & Sullivan
The companies participating in this market range from the very large, previously
mentioned multinational companies to smaller participants. The defining
competitive criterion is the product itself. Quality products are available from
both large and small manufacturers. However, currently, 37% of the market is
controlled by Texas Instruments, ON Semiconductor, and ST Microelectronics.
Growing from a smaller base, International Rectifier is one of the fastest growing
smart power IC manufacturers today.
Stephens Inc. 47
Market Trends
Table 11
North American Smart Power IC Market
(Percent of Revenues by End-User Industry)
Like other power IC markets, the growth in the smart power IC market should be
derived mainly from the communications market. Communications, which
accounted for approximately 35% of the smart power market in 1999, is
scheduled to grow to approximately 43% in 2006. During 1999, the growth in
smart ICs was also helped by the automotive market and power supplies market.
Customer demand for increased portability will drive the growth going forward,
as the move towards portability will result in IC replacement of discrete
alternatives based on improving performance of ICs and increasing economies of
scales.
The trend in smart power pricing, like other Power ICs, is upward. During 1999,
we found that prices increased between 3% and 5%. We would expect prices to
continue to trend higher over the coming years but at a slower rate than was
experienced in 1999. This market will no doubt follow the lead of other more
established power semiconductor markets. As the power IC market begins to
mature, market share should be gained through aggressive pricing, and margins
will likely be maintained by cost cutting efforts.
Market Drivers
Price is the number Price is the number one factor driving sales of smart power ICs. When a cost
one issue with smart advantage can be gained using a smart power IC over discretes, OEMs typically
power ICs choose the IC.
Standard smart power ICs offer end-users an off-the-shelf solution that shortens
the time to market for their product. Vendors providing a wide range of standard
Stephens Inc. 48
smart power ICs enable their customers to get their final product to market
quickly by reducing the need for customized solutions or board level designs.
Market Restraints
This report has painted a rosy outlook for power semiconductors. Over the
longer term, the trend line is definitely moving up. However, for all of its
attractive characteristics, the power semiconductor sector in general is not
immune to inventory corrections and broad semiconductor downturns. The
group of companies that comprise the power semiconductor industry are very
diverse, both in terms of product offerings and served markets. Because of this,
some companies will do better than others when the inevitable semiconductor
cycle downturn hits. On the other hand, other companies do better during the
growth phase of a cyclical upturn. We intend to use our experience in following
this unique market to help our clients take advantage of these cyclical changes.
Stephens Inc. 49
We watch manufacturing capacity levels, which in our opinion drive the overall
We believe that end semiconductor cycles, because of their strong influence on the more price-
markets influence sensitive companies on our coverage list. However, the majority of the power
power semiconductor semiconductor companies on our coverage list are more dependent on the health
companies more than of the end-markets that they serve than the state of the overall semiconductor
the overall market. We have intentionally built our coverage list with companies that realize
semiconductor cycle a significant percentage of their revenues from the fastest growing segment of
our economy, the communications market.
As we stated in the opening of this section, the power semiconductor has truly
come of age. These devices interface with the various technologies that are
required to deliver reliable power, and they are capable of dramatically reducing
the worlds energy consumption. There is a precedent to the kind of change and
opportunity that we are talking about. Generations of regulatory and
technological change created new opportunities in the telecommunications
industry and transformed a sleepy utility sector of Grandma stocks into a
vibrant investment sector. Similar dynamics are at work in the electricity sector,
and the power semiconductor is at the heart of the action.
Finally, the power semiconductor industry is not unlike other industries; those
companies that best understand their customer needs and design and deliver
products that meet those needs will be the most successful.
Stephens Inc. 50
Power Semiconductors Company Profiles
Stephens Inc. 51
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Stephens Inc. 52
Advanced Power Technology, Inc. (APTI-NASDAQ)
Debt/Capital: 0%
3-Year Estimated CAGR: 70% 20
Company Description
Stephens Inc. 53
Through acquisitions and/or increased R&D efforts, we expect APT to
increase its exposure in fast-growing, high power radio frequency (RF)
applications. RF MOSFET (metal oxide silicon field effect transistor) refers to
a specialized type of device that operates at very high switching speeds. APTs
existing RF MOSFET product offering already addresses the semiconductor
capital equipment, medical imaging and CO2 laser markets. The Company
would like to expand into the communications RF band market. The RF market
is currently being addressed primarily by low voltage RF devices or RF tubes.
APTs high voltage RF MOSFETs allow for a lower overall system cost when
designing RF components and electronics.
APT has a strong, tenured management team. APTs six senior officers
purchased controlling interest in the Company in 1995; in 1998, they acquired
the balance. We think management had the right idea to purchase the
Company, but its timing was bad. Following a period of strong sequential
growth, demand softened and revenue growth slowed from 1995 to 1999.
During this period, management focused on cash flows and kept the Company
afloat. Today, with the demand picture improved dramatically and APT armed
with the proceeds from the recent IPO, we believe that management is poised to
take the Company to new heights. Led by Chairman, CEO and President,
Patrick Sireta, the senior management team has an average of 14 years
experience at APT. Mr. Sireta has 31 years of experience in the semiconductor
industry. With the completion of the IPO, management owns approximately
50% of the outstanding shares.
Stephens Inc. maintains a market in the common stock of Advanced Power and may act as
principal in these transactions. Stephens Inc. has managed or co-managed an underwriting for
Advanced Power within the past three years.
Stephens Inc. 54
Advanced Power Technology
Historical Earnings Summary & Projections
$ in millions, except per share amounts
Revenues $ 5.9 $ 6.6 $ 7.3 $ 7.8 $ 9.6 $ 10.1 $ 11.0 $ 11.9 $ 12.8 $ 13.6 $ 14.8 $ 15.8 $ 24.9 $ 27.5 $ 42.5 $ 57.0
Cost of Goods Sold 4.0 4.2 4.9 4.8 6.2 6.3 6.8 7.3 7.8 8.3 9.0 9.6 17.6 18.0 26.7 34.6
Gross Profit 1.8 2.3 2.4 2.9 3.4 3.7 4.2 4.6 5.0 5.3 5.8 6.2 7.2 9.5 15.9 22.4
Research & Development 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.5 0.6 0.7 0.9 0.9 1.0 2.1
SG&A 1.6 1.8 1.6 2.0 2.2 2.2 2.4 2.5 2.6 2.7 2.8 2.9 6.8 7.0 9.3 11.1
Operating Income 0.0 0.4 0.6 0.7 1.0 1.3 1.5 1.8 2.0 2.2 2.4 2.6 (0.5) 1.6 5.6 9.2
Net Interest Income (Expense) (0.2) (0.1) (0.1) (0.3) (0.1) (0.2) 0.0 0.4 0.4 0.4 0.4 0.4 (0.7) (0.7) 0.0 1.5
Other Income (Expense) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0
Pretax Income (0.1) 0.3 0.4 0.4 0.8 1.1 1.5 2.2 2.4 2.5 2.8 3.0 (1.1) 1.0 5.6 10.7
Taxes (0.1) 0.1 (0.2) 0.4 0.3 0.4 0.6 0.8 0.9 1.0 1.1 1.1 (0.8) 0.2 2.2 4.1
Net Income (0.0) 0.2 0.7 (0.0) 0.5 0.7 0.9 1.3 1.5 1.6 1.7 1.9 (0.3) 0.8 3.5 6.6
Average Shares (Diluted) 5.0 5.0 5.0 5.0 6.3 6.3 7.8 9.3 9.3 9.4 9.5 9.6 5.0 5.0 7.4 9.4
EPS (Diluted) $ (0.00) $ 0.04 $ 0.13 $ (0.00) $ 0.08 $ 0.11 $ 0.12 $ 0.14 $ 0.16 $ 0.17 $ 0.18 $ 0.19 $ (0.06) $ 0.16 $ 0.46 $ 0.70
Depreciation & Amortization 0.5 0.5 0.3 0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 1.9 1.4 1.2 1.6
EBITDA 0.5 0.8 0.9 0.9 1.2 1.6 1.8 2.1 2.4 2.6 2.8 3.0 1.4 3.1 6.8 10.8
Margins
Gross Profit 31.2% 35.6% 32.6% 37.6% 35.4% 37.2% 38.0% 38.5% 39.0% 39.2% 39.3% 39.5% 29.0% 34.5% 37.4% 39.3%
Research & Development 3.4% 3.6% 2.9% 3.0% 2.5% 2.5% 2.4% 2.3% 3.0% 3.4% 3.8% 4.2% 3.7% 3.2% 2.4% 3.6%
SG&A 27.1% 26.6% 22.1% 25.9% 22.9% 21.9% 21.9% 21.0% 20.3% 19.9% 19.1% 18.6% 27.2% 25.3% 21.9% 19.4%
Operating Income 0.7% 5.4% 7.6% 8.8% 10.0% 12.8% 13.7% 15.2% 15.7% 15.9% 16.4% 16.7% NM 5.9% 13.1% 16.2%
Pretax Income NM 4.1% 6.1% 5.0% 8.6% 11.2% 13.7% 18.1% 18.6% 18.7% 19.0% 18.9% NM 3.7% 13.2% 18.8%
Net Income NM 2.9% 9.2% NM 5.2% 6.8% 8.5% 11.2% 11.5% 11.6% 11.8% 11.7% NM 2.9% 8.1% 11.7%
Tax Rate 73.9% 30.5% -50.3% 106.4% 39.2% 39.5% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 73.5% 20.6% 38.5% 38.0%
EBITDA 8.5% 12.3% 12.3% 11.3% 12.6% 16.0% 16.5% 18.0% 18.8% 18.9% 19.1% 19.2% 5.8% 11.2% 15.9% 19.0%
*Pro Forma
Does not include the effects of pushdown accounting and warrants associated with a $2.5 million bank loan.
Source: Company reports and Stephens Inc. estimates
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Cree, Inc. (CREE-NASDAQ)
High: 202.00
CREE INC
Price (close on 9/15/00): $115.94 CREE 9/15/99 to 9/15/00
Low:
Last:
32.13
115.94
USD
200
52-Week Range: $202.00 - $32.13 150
Price Target (12-month): $175 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
World leader in silicon carbide (SiC) technology. Cree, Inc. (CREE) was
established in 1987 to commercialize silicon carbide (SiC) as a base
semiconductor material. Today, Cree is the largest producer of SiC wafers and
other silicon carbide-based semiconductor materials. While silicon carbide has
been around since 1824, it was extremely difficult to produce in large
quantities. Cree developed a way to mass-produce single crystalline SiC, and 70
patents have been issued to the Company for technological breakthroughs and
product development.
Stephens Inc. 57
include microwave products, wireless transmission products, and power devices
such as high-power rectifiers and switches.
Key for Cree is executing its plan to meet demand. Demand is now visible
Cree decreased the into the next three to four quarters. Cree must continue to increase capacity and
cost of its LEDs by an improve yields. This is not a new problem for the Company, and management
average of 50% over has proven its ability to execute its strategy in the past. In FY99 and FY00,
the past two years Cree dropped the average cost of its standard LED by approximately 50%.
Going forward, Cree must continue to decrease the cost of producing its high-
brightness LEDs to maintain margins.
Near-term outlook is good with strong visibility and record backlog. Crees
4Q00 backlog of $76.6 million was the highest in its history. With product
demand now visible into the next three to four quarters, the Company is
essentially booked for the rest of FY01.
Stephens Inc. maintains a market in the common stock of Cree, Inc. and may act as principal in
these transactions.
Stephens Inc. 58
CREE, INC.
Historical Earnings Summary & Projections
(in millions, except per share amounts)
Depreciation & Amortization $ 1.5 $ 1.7 $ 2.0 $ 2.1 $ 2.5 $ 2.7 $ 2.9 $ 3.0 $ 3.2 $ 3.4 $ 3.5 $ 3.6 $ 5.0 $ 7.3 $ 11.1 $ 13.7
EBITDA $ 7.9 $ 9.8 $ 11.4 $ 15.0 $ 16.8 $ 18.2 $ 20.3 $ 22.7 $ 24.6 $ 26.9 $ 29.0 $ 31.3 $ 21.5 $ 44.1 $ 77.9 $ 111.8
Margin Analysis
Gross Profit 45.4% 51.3% 53.5% 54.5% 54.2% 54.3% 54.2% 54.4% 54.5% 54.6% 54.3% 54.3% 46.8% 51.8% 54.3% 54.4%
R&D 4.5% 7.7% 7.6% 5.9% 6.0% 6.1% 6.2% 6.2% 6.3% 6.3% 6.2% 6.1% 7.4% 6.5% 6.1% 6.2%
SG&A 9.9% 11.2% 10.1% 9.9% 9.9% 10.0% 10.1% 9.9% 9.7% 9.2% 8.9% 8.5% 10.1% 10.2% 10.0% 9.0%
Operating Income 30.6% 32.5% 31.9% 38.6% 38.3% 38.2% 37.9% 38.3% 38.5% 39.1% 39.2% 39.7% 27.6% 33.9% 38.2% 39.2%
Pretax Income 33.3% 34.8% 44.6% 52.1% 49.0% 47.1% 45.1% 44.3% 43.3% 43.1% 42.6% 42.3% 29.3% 42.5% 46.2% 42.8%
Net Income 21.8% 22.8% 29.5% 33.6% 32.3% 31.1% 29.8% 29.3% 28.6% 28.4% 28.1% 27.9% 21.1% 27.7% 30.5% 28.2%
Tax Rate 34.4% 34.6% 34.0% 35.6% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 28.0% 34.8% 34.0% 34.0%
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International Rectifier Corp. (IRF-NYSE)
High: 67.44
INTL RECTIFIER CORP
Price (close on 9/15/00): $59.50 IRF 9/15/99 to 9/15/00
Low:
Last:
14.69
59.50
USD
70
50
Debt/Capital: 1% 20
Price Target (12-month): $90 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
IRF has developed a lucrative patent portfolio. IRF currently holds over 300
patents. The majority of the MOSFET (metal oxide semiconductor field effect
transistor) market is served by International Rectifier and companies that
Stephens Inc. 61
license IRFs technology. It has over 20 companies under licensing agreements,
IRF owns key
MOSFET-related
some of which include ABB Semiconductor, Hitachi, Mitsubishi Electronics,
patents Motorola, National Semiconductor, NEC, SGS-Thompson, Toshiba, and
Unitrode. The Companys strong patent portfolio and extensive licensing
agreements yielded $36.4 million in royalty revenue in FY00.
The Company has available capacity and lower lead times than the
IRF currently has industry average. Currently, IRFs capacity utilization is only 85%, versus the
shorter lead times industry average of around 90%. Additionally, International Rectifier is
than the industry
maintaining lead times in the 4- to 18-week range, which is much shorter than
average
the industry average of around 30 weeks. Shorter lead times aid in IRFs ability
to gain market share, allowing it to grow faster than the industry average.
Stephens Inc. 62
International Rectifier Corp.
Historical Earnings Summary & Projections
$ in millions, except per share amounts
Revenues $ 152.2 $ 171.1 $ 198.0 $ 232.0 $ 245.5 $ 260.3 $ 274.6 $ 290.0 $ 307.4 $ 325.8 $ 345.7 $ 366.4 $ 545.3 $ 753.3 $ 1,070.3 $ 1,345.2
Cost of Goods Sold 104.0 112.9 125.5 142.8 149.0 155.6 162.3 169.6 178.3 188.5 199.3 211.0 388.2 485.2 636.6 777.1
Gross Profit 48.2 58.2 72.4 89.2 96.5 104.6 112.3 120.3 129.1 137.3 146.4 155.4 157.2 268.1 433.8 568.2
Selling & Administrative 26.7 27.1 28.8 32.1 33.0 34.6 35.7 37.7 40.0 42.0 44.6 46.9 98.2 114.7 141.0 173.5
Research & Development 10.6 11.1 11.8 13.7 15.2 16.6 17.8 19.0 20.3 22.2 23.9 25.6 40.5 47.2 68.5 91.9
Operating Income 11.0 20.1 31.8 43.4 48.3 53.5 58.8 63.7 68.8 73.1 77.9 82.8 18.5 106.2 224.2 302.7
Interest Income (Expense) (3.4) (3.9) (2.1) 3.4 4.2 4.4 4.4 4.6 4.5 4.5 4.5 4.5 (11.1) (6.0) 17.6 18.0
Other Income (Expense) - 0.6 0.5 0.2 - - - - - - - - 1.4 1.3 - -
Pretax Income 7.5 16.8 30.2 47.1 52.5 57.9 63.2 68.3 73.3 77.6 82.4 87.3 8.7 101.5 241.8 320.7
Taxes 2.4 4.4 8.5 13.2 13.1 14.5 15.8 17.1 21.3 22.5 23.9 25.3 2.7 28.4 60.5 93.0
Net Income $ 5.1 $ 12.4 $ 21.7 $ 33.9 $ 39.4 $ 43.4 $ 47.4 $ 51.2 $ 52.1 $ 55.1 $ 58.5 $ 62.0 $ 6.0 $ 73.1 $ 181.4 $ 227.7
Average Shares (Diluted) 53.1 54.1 57.7 65.7 67.4 67.8 68.5 69.0 69.0 69.0 69.0 69.0 51.3 57.7 68.2 69.0
EPS (Diluted) $0.10 $0.23 $0.38 $0.52 $0.58 $0.64 $0.69 $0.74 $0.75 $0.80 $0.85 $0.90 $ 0.12 $ 1.27 $ 2.66 $ 3.30
Depreciation & Amortization $13.1 $13.4 $14.4 $14.7 $15.8 $16.0 $16.4 $16.8 $17.0 $17.4 $18.0 $18.9 $47.9 $55.6 $65.0 $70.3
EBITDA $24.1 $33.5 $46.2 $58.1 $64.1 $69.5 $75.2 $80.5 $85.8 $90.5 $95.9 $101.7 $66.4 $161.8 $289.2 $373.0
Margins
Gross profit 31.7% 34.0% 36.6% 38.5% 39.3% 40.2% 40.9% 41.5% 42.0% 42.2% 42.4% 42.4% 28.8% 35.6% 40.5% 42.2%
Selling & Administrative 17.5% 15.8% 14.6% 13.8% 13.4% 13.3% 13.0% 13.0% 13.0% 12.9% 12.9% 12.8% 18.0% 15.2% 13.2% 12.9%
Research & Development 7.0% 6.5% 6.0% 5.9% 6.2% 6.4% 6.5% 6.5% 6.6% 6.8% 6.9% 7.0% 7.4% 6.3% 6.4% 6.8%
Operating Income 7.2% 11.7% 16.1% 18.7% 19.7% 20.5% 21.4% 22.0% 22.4% 22.5% 22.6% 22.6% 3.4% 14.1% 20.9% 22.5%
Pretax Income 5.0% 9.8% 15.2% 20.3% 21.4% 22.2% 23.0% 23.5% 23.9% 23.8% 23.9% 23.8% 1.6% 13.5% 22.6% 23.8%
Net Income 3.4% 7.2% 11.0% 14.6% 16.0% 16.7% 17.3% 17.7% 16.9% 16.9% 16.9% 16.9% 1.1% 9.7% 16.9% 16.9%
Tax rate 32.0% 26.1% 28.1% 28.0% 25.0% 25.0% 25.0% 25.0% 29.0% 29.0% 29.0% 29.0% 31.0% 28.0% 25.0% 29.0%
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Power Integrations Inc. (POWI-NASDAQ)
High: 68.00
POWER INTEGRATIONS INC
Price (close on 9/15/00): $14.31 POWI 9/15/99 to 9/15/00
Low:
Last:
14.00
14.31
USD
70
50
Debt/Capital: 0% 20
Price Target (12-month): $49 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Power Integrations stock has been hit because of slowing sales to its
number one customer Motorola. In 1Q00, POWI had a disappointing quarter,
with lower-than-expected sales to Motorola. The decrease was primarily a
The situation at result of Motorola selling more of its low-end mobile phones in pre-paid
Motorola is packages, especially in Europe. POWIs products are typically used in phone
trending back in chargers packaged with MOTs higher-end phones. In POWIs most recent
POWIs favor quarter, sales to Motorola were only 11% of total sales, down 40% year-over-
year. Motorola has discontinued manufacturing several lower-end phone
models and is ramping up production of several higher-end models to compete
with Nokia and Ericsson. This is good news for POWI; its proprietary
integrated circuits have a much better chance of being designed into a phone
charger for higher-end phones. It should be noted that demand from POWIs
other customers increase 100% year-over-year. The wireless market represents
approximately 33% of POWIs sales.
Stephens Inc. 65
New product development initiatives. The Company now has three main
product lines: the TOPSwitch-FX, targeted at applications from 0 to 75 watts;
the TinySwitch for use in applications from 0 to 19 watts; and the TOPSwitch,
Customer acceptance which is focused on uses in the 0 to 150-watt range. The TOPSwitch-FX line is
of POWIs new the latest Company release, introduced to the market in March 2000. This
TOPSwitch-FX has product is targeted for applications such as cellular phone chargers, PC standby
been better and power supplies, set-top boxes, DVDs, LCD monitors, and multimedia speakers.
sooner than initially Initially, we expected revenue to begin to ramp up for this product in 2Q01.
expected However, customer feedback has been very positive, and POWI began
shipments of the new product in the most recent quarter to MOT and other
customers.
Power Integrations has built a better mouse trap. The Companys integrated
We believe that a
circuits allow designers of low-end power supplies to build components that are
second-source smaller and more efficient than older versions. To date, POWI has no direct
competitor would be competition. We believe that this will change and that competition will be good
good for POWI for POWI. In the electronic component and semiconductor industries, it doesnt
always pay to get too far ahead of the technology curve. Customers
understandably like to have a second source. While the Company has grown
exceptionally well in the past, we think its size and the lack of competition have
been hindrances. The removal of one of these (i.e., the addition of a second-
source competitor or the increase in scale of POWIs organization through
acquisitions or a merger/buyout) would help to more effectively market POWIs
superior technology.
Stephens Inc. maintains a market in the common stock of Power Integrations and may act as
principal in these transactions.
Stephens Inc. 66
POWER INTEGRATIONS, INC.
Historical Earnings Summary & Projections
$ in millions, except per share amounts
Average Shares (Diluted) 27.5 28.2 28.6 28.9 28.9 28.7 29.5 29.8 30.0 30.0 30.0 30.0 26.5 28.3 29.2 30.0
EPS reported $ 0.18 $ 0.19 $ 0.24 $ 0.26 $ 0.17 $ 0.18 $ 0.23 $ 0.24 $ 0.24 $ 0.25 $ 0.29 $ 0.30 $ 0.48 $ 0.86 $ 0.82 $ 1.08
EPS (Diluted, taxed @ 35%) $ 0.14 $ 0.15 $ 0.18 $ 0.20 $ 0.37 $ 0.67
Depreciation & Amortization $ 1.0 $ 1.1 $ 0.8 $ 0.8 $ 0.9 $ 1.0 $ 1.1 $ 1.2 $ 1.2 $ 1.3 $ 1.3 $ 1.4 $ 3.1 $ 3.7 $ 4.2 $ 5.2
EBITDA $ 6.2 $ 6.9 $ 8.2 $ 9.0 $ 7.1 $ 7.8 $ 10.2 $ 10.3 $ 10.6 $ 10.9 $ 12.9 $ 13.3 $ 17.1 $ 30.4 $ 35.4 $ 47.6
Margins
Gross profit 54.5% 54.4% 58.0% 52.9% 52.0% 52.2% 52.0% 52.0% 51.8% 51.8% 51.5% 51.5% 47.7% 55.0% 52.0% 51.6%
Research & development 11.2% 11.0% 9.3% 10.2% 10.9% 11.8% 10.4% 10.3% 10.3% 10.5% 10.0% 10.0% 10.3% 10.3% 10.8% 10.2%
Sales & marketing 11.9% 11.9% 9.6% 9.9% 12.2% 11.9% 12.0% 11.8% 11.4% 11.3% 10.5% 10.7% 12.1% 10.7% 12.0% 10.9%
General & administrative 6.6% 6.2% 14.3% 5.4% 6.8% 5.2% 4.2% 4.5% 4.6% 4.7% 5.1% 5.0% 5.2% 8.4% 5.1% 4.9%
Operating income 24.8% 25.3% 24.7% 27.4% 22.1% 23.3% 25.4% 25.4% 25.5% 25.2% 25.8% 25.8% 20.0% 25.6% 24.2% 25.6%
Pretax income 27.7% 27.2% 26.4% 29.4% 24.8% 25.7% 27.7% 27.9% 27.9% 27.9% 28.1% 28.0% 21.8% 27.7% 26.7% 28.0%
Net income 23.5% 23.1% 22.5% 24.9% 17.4% 18.0% 19.4% 19.5% 19.5% 19.5% 19.6% 19.6% 18.1% 23.5% 18.7% 19.6%
Tax rate 15.0% 15.1% 14.9% 15.2% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 17.0% 15.0% 30.0% 30.0%
Stephens Inc. 67
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Stephens Inc. 68
Semtech Corp. (SMTC-NASDAQ)
High: 120.11
SEMTECH CORP
Price (close on 9/15/00): $100.63 SMTC 9/15/99 to 9/15/00
Low:
Last:
29.75
100.63
USD
120
52-Week Range: $120.11 - $29.75 100
Debt/Capital: 68% 40
Price Target (12-month): $135 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Semtech Corporation (SMTC) was founded in 1960 and went public in 1967.
The Company designs and manufactures a broad line of analog and mixed-
signal integrated circuits (ICs) used in the computer, communications,
industrial, automotive, and military/aerospace industries. Additionally, SMTC
provides wafer foundry services to other electronic component manufacturers.
Semtech is based in Newbury Park, California, and has manufacturing facilities
in California, Texas, Mexico and Scotland and design centers in California,
North Carolina, and Scotland.
Semtech is leveraging its design talent. The most important resource in the
analog semiconductor industry is design engineers. Just six years ago, Semtech
We expect Semtech to had only six full-time circuit designers and one design center. Remarkably,
introduce 75 new today it employs approximately 280 engineers, an impressive number for a
product families in the company its size. Semtechs aggressive investment in design talent is
current fiscal year beginning to pay dividends and is far from being fully leveraged. We expect
the Company to introduce 130 to 140 new product families in FY01 (January
year-end), up from 88 new product families in FY00.
Stephens Inc. 69
Semtechs strategy of diversifying its applications, products and customers
has been successful. Semtechs main strategic product lines are power
Semtechs diversified management, protection, automated test equipment (ATE), ICs and advanced
product offerings communications ICs. This diversity has evolved over nearly 40 years. Starting
and customer base
with the military/aerospace market, Semtech moved to the commercial
will help insulate the
Company from the computer market, then to the portable systems market, and then to the ATE
next cyclical market. Lately, its focus has been in the high-bandwidth communications
downturn market. With design wins in systems that span several industries, Semtechs
success is independent of the cycles of any one industry.
Stephens Inc. maintains a market in the common stock of Semtech and may act as principal in
these transactions.
Stephens Inc. 70
SEMTECH CORPORATION
Historical Earnings Summary & Projections
(in millions, except per share amounts)
Sales $ 33.0 $ 38.3 $ 47.1 $ 55.4 $ 57.4 $ 60.6 $ 68.2 $ 76.4 $ 80.2 $ 84.2 $ 93.5 $ 102.9 $ 102.8 $ 114.5 $ 173.8 $ 262.7 $ 360.9
Cost of Sales 16.4 18.6 22.1 25.6 26.2 27.0 30.0 32.9 33.7 34.5 37.4 40.6 53.9 60.2 82.7 116.1 146.3
Gross Profit 16.6 19.6 25.0 29.8 31.2 33.6 38.2 43.6 46.5 49.7 56.1 62.2 48.9 54.3 91.0 146.6 214.6
SG & A 5.6 6.1 7.2 8.3 8.2 8.6 9.7 10.7 11.1 11.5 12.7 14.0 16.9 20.1 27.2 37.2 49.3
Development and Engineering 4.1 4.5 5.5 6.2 7.0 7.7 8.7 9.7 10.3 10.9 12.2 13.4 9.2 14.0 20.3 33.1 46.7
Other (Income)/Expense - - - - - - - - - - - - - - - - -
Operating Income 6.8 9.1 12.3 15.3 15.9 17.3 19.9 23.2 25.2 27.3 31.2 34.9 22.8 20.2 43.5 76.2 118.6
Interest (Income)/Expense (0.3) (0.2) (0.2) (0.4) (1.3) (2.3) (2.4) (2.4) (2.5) (2.5) (2.6) (2.6) (0.3) (0.8) (1.1) (8.4) (10.2)
Pretax Income 7.1 9.3 12.5 15.7 17.3 19.6 22.3 25.6 27.7 29.8 33.8 37.5 23.2 20.9 44.6 84.7 128.8
Taxes 2.3 3.1 4.1 5.2 5.1 5.9 6.7 7.7 8.3 8.9 10.2 11.2 7.7 7.0 14.7 25.3 38.6
Net Income $ 4.8 $ 6.2 $ 8.4 $ 10.5 $ 12.1 $ 13.7 $ 15.6 $ 17.9 $ 19.4 $ 20.9 $ 23.7 $ 26.2 $ 15.4 $ 14.0 $ 29.9 $ 59.3 $ 90.2
Average Shares - Diluted 33.1 34.6 35.5 36.9 37.4 37.9 38.3 38.8 39.2 39.6 40.0 40.4 30.1 31.3 35.0 38.1 39.8
EPS - Diluted $ 0.14 $ 0.18 $ 0.24 $ 0.29 $ 0.32 $ 0.36 $ 0.41 $ 0.46 $ 0.49 $ 0.53 $ 0.59 $ 0.65 $ 0.51 $ 0.45 $ 0.85 $ 1.55 $ 2.26
Depreciation & Amortization $ 1.1 $ 0.9 $ 1.0 $ 0.9 $ 1.0 $ 1.2 $ 1.2 $ 1.2 $ 1.3 $ 1.3 $ 1.5 $ 1.5 $ 2.78 $ 3.7 $ 3.9 $ 4.6 $ 5.6
EBITDA $ 7.9 $ 10.0 $ 13.3 $ 16.2 $ 16.9 $ 18.5 $ 21.1 $ 24.4 $ 26.5 $ 28.6 $ 32.7 $ 36.4 $ 25.6 $ 23.9 $ 47.4 $ 80.8 $ 124.2
Margin Analysis
Gross Profit 50.2% 51.4% 53.1% 53.8% 54.3% 55.5% 56.0% 57.0% 58.0% 59.0% 60.0% 60.5% 47.6% 47.4% 52.4% 55.8% 59.5%
SG&A 17.1% 15.9% 15.2% 15.0% 14.3% 14.2% 14.2% 14.0% 13.8% 13.7% 13.6% 13.6% 16.5% 17.5% 15.7% 14.2% 13.7%
Development and Engineering 12.5% 11.8% 11.8% 11.1% 12.3% 12.7% 12.7% 12.7% 12.8% 12.9% 13.0% 13.0% 8.9% 12.2% 11.7% 12.6% 12.9%
Operating Income 20.7% 23.7% 26.1% 27.7% 27.7% 28.5% 29.1% 30.3% 31.4% 32.4% 33.4% 33.9% 22.2% 17.6% 25.0% 29.0% 32.9%
Pretax Income 21.5% 24.3% 26.6% 28.4% 30.1% 32.3% 32.6% 33.4% 34.5% 35.4% 36.2% 36.4% 22.5% 18.3% 25.7% 32.2% 35.7%
Net Income 14.4% 16.3% 17.8% 19.0% 21.1% 22.6% 22.8% 23.4% 24.2% 24.8% 25.3% 25.5% 15.0% 12.2% 17.2% 22.6% 25.0%
Tax Rate 33.0% 33.0% 33.0% 33.0% 29.7% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 33.4% 33.4% 33.0% 29.9% 30.0%
Stephens Inc. 71
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Stephens Inc. 72
TelCom Semiconductor (TLCM-NASDAQ)
High: 46.88
TELCOM SEMICONDUCTOR INC
Price (close on 9/15/00): $14.63 TLCM 9/15/99 to 9/15/00
Low:
Last:
7.88
14.63
USD
Debt/Capital: 0%
10
Price Target (12-month): $31 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Stephens Inc. 73
The Company has entered into several strategic relationships. In late
January 1999, TelCom announced that it had entered into an agreement with
Motorolas Semiconductor Components Group, now ON Semiconductor.
In early 1999, TelCom Under the terms of the agreement, ON and TelCom became authorized sources
announced a strategic for many of each companys power and thermal management products. The
relationship with ON agreement with ON has quickly added products to TelComs portfolio.
Semiconductor
Currently, TelCom is marketing 10 of ONs products and ON is selling around
15 to 20 of TLCMs products. We expect that both of these amounts will
increase by three to four per quarter going forward.
At the end of 2Q00, TLCM had around $8 million in backlog with ON, with $7
million scheduled for shipment in 2H00, versus basically zero in 1H00. The
only question for TLCM is how fast it can get the product out the door.
Additionally, the relationship should allow both companies to more rapidly
identify and respond to target markets. TelCom is also aggressively pursuing
strategic acquisitions that would round out its product offerings and/or broaden
its customer base.
TelComs stock price has been under pressure in the last few months, due
to the current weakness being experienced in its wireless handset business,
The transition of specifically at Motorola. Motorola is TLCMs largest customer, representing
Motorolas handset 31% of revenues during 2Q00. Due to MOTs de-emphasis of its lower-end
business is negatively cell phones, and the timing difference in its ramp up of high-end phones,
impacting TelCom TLCMs revenues will be adversely affected. We expect that TLCMs
revenues from MOT will be in the $2.0 million to $2.5 million range for the
next two quarters. However, the revenue from the ON Semiconductor
relationship will help to offset the adverse affects from Motorolas changed
strategy.
Stephens Inc. maintains a market in the common stock of TelCom and may act as principal in
these transactions. Stephens Inc. has managed or co-managed an underwriting for TelCom
within the past three years.
Stephens Inc. 74
TELCOM SEMICONDUCTOR, INC.
Historical Earnings Summary & Projections
(in millions, except per share amounts)
Sales $ 12.8 $ 13.9 $ 14.9 $ 15.8 $ 17.2 $ 20.0 $ 19.0 $ 20.0 $ 21.2 $ 23.5 $ 25.5 $ 27.5 $ 55.4 $ 54.3 $ 57.4 $ 76.2 $ 97.7
Cost of Sales 7.8 7.4 8.1 8.4 8.7 9.7 9.2 9.7 10.3 11.4 12.4 13.3 31.2 34.9 31.6 37.4 47.4
Gross Profit 5.0 6.5 6.8 7.4 8.5 10.3 9.8 10.3 10.9 12.1 13.1 14.2 24.3 19.4 25.7 38.8 50.3
SG&A 2.3 2.6 2.6 2.6 2.6 3.3 3.2 3.3 3.4 3.6 3.8 3.9 9.5 9.5 10.0 12.4 14.7
R&D 1.8 1.9 1.5 1.6 2.4 2.6 2.8 2.9 3.1 3.2 3.4 3.6 5.5 5.6 6.8 10.7 13.3
Operating Income 1.0 2.0 2.6 3.2 3.5 4.4 3.8 4.1 4.4 5.3 5.9 6.7 9.3 4.3 8.8 15.7 22.3
Interest (Income)/Expense (0.1) 0.0 (0.2) (0.2) (0.3) (1.6) (1.7) (1.8) (1.8) (1.9) (1.9) (1.9) 0.3 (0.4) (0.4) (5.4) (7.5)
Pretax Income 1.1 2.0 2.7 3.3 3.8 6.0 5.5 5.8 6.2 7.2 7.8 8.6 9.0 4.7 9.2 21.1 29.8
Taxes 0.3 0.6 0.5 0.6 0.9 1.4 1.3 1.3 1.4 1.6 1.8 2.0 2.4 1.3 2.0 4.9 6.8
Net Income $ 0.8 $ 1.5 $ 2.2 $ 2.7 $ 2.9 $ 4.6 $ 4.2 $ 4.5 $ 4.8 $ 5.5 $ 6.0 $ 6.6 $ 6.6 $ 3.4 $ 7.1 $ 16.2 $ 22.9
Average Shares - Diluted 15.1 15.2 16.2 16.8 17.3 20.4 20.3 20.5 20.7 21.0 21.2 21.6 17.1 16.5 15.7 19.6 21.1
EPS - Diluted $ 0.05 $ 0.10 $ 0.14 $ 0.16 $ 0.17 $ 0.23 $ 0.21 $ 0.22 $ 0.23 $ 0.26 $ 0.28 $ 0.31 $ 0.39 $ 0.20 $ 0.45 $ 0.83 $ 1.08
Depreciation & Amortization $ 0.8 $ 0.8 $ 0.8 $ 0.8 $ 0.8 $ 0.8 $ 0.8 $ 0.8 $ 0.7 $ 0.7 $ 0.7 $ 0.7 $ 4.1 $ 5.2 $ 3.0 $ 3.0 $ 2.8
EBITDA $ 1.8 $ 2.8 $ 3.3 $ 3.9 $ 4.2 $ 5.1 $ 4.5 $ 4.8 $ 5.1 $ 6.0 $ 6.6 $ 7.4 $ 13.4 $ 9.5 $ 11.8 $ 18.7 $ 25.1
Margin Analysis
Gross Profit 39.3% 47.0% 45.6% 46.8% 49.3% 51.4% 51.4% 51.4% 51.5% 51.5% 51.5% 51.5% 43.8% 35.7% 44.9% 50.9% 51.5%
SG&A 17.6% 18.6% 17.5% 16.4% 15.2% 16.5% 16.8% 16.5% 16.0% 15.3% 14.9% 14.2% 17.2% 17.5% 17.5% 16.3% 15.0%
R&D 14.0% 13.6% 9.9% 10.4% 13.8% 13.1% 14.7% 14.5% 14.6% 13.6% 13.3% 13.1% 9.8% 10.3% 11.8% 14.0% 13.6%
Operating Income 7.8% 14.8% 17.3% 20.0% 20.3% 21.8% 19.8% 20.4% 20.8% 22.6% 23.3% 24.2% 16.7% 7.9% 15.3% 20.6% 22.8%
Pretax Income 8.3% 14.7% 18.4% 21.0% 22.0% 30.0% 28.8% 29.2% 29.3% 30.4% 30.7% 31.1% 16.2% 8.6% 16.0% 27.7% 30.5%
Net Income 6.1% 10.8% 14.7% 17.0% 17.0% 23.1% 22.2% 22.4% 22.6% 23.4% 23.7% 24.0% 11.8% 6.3% 12.5% 21.3% 23.5%
Tax Rate 27.0% 27.0% 19.8% 19.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 27.0% 27.0% 22.0% 23.0% 23.0%
Stephens Inc. 75
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Stephens Inc. 76
POWER SUPPLY FUNDAMENTALS
Just as electronic devices are as diverse as personal digital assistants (PDAs) and
medical diagnostic equipment, so too are power supplies. The differences range
from the technology used in their construction, to the power output that they
supply, to the architecture used in their configuration. This diversity has allowed
a large number of companies to get into the business and stake a claim on one or
more of the many niche markets.
The worldwide market for power supplies is large and growing. In 1995 the
market was $15.0 billion and reached $26.6 billion in 1999. According to Micro-
The current worldwide Tech Consultants, by 2004, the global power supply market is expected to reach
market for power approximately $43.1 billion, a CAGR of 10.2% from 1999 to 2004. Also looking
supplies is $26.6 billion. forward through 2004, North America will lead the growth with a CAGR of
It is estimated to be at 11.6%, followed by Europe at 9.3%, Asia at 8.6% and the rest of the world at
$43.1 billion in 2004 9.7%. Within the total market, the communications segment is growing at the
fastest pace, fueled by the proliferation in networking and wireless services. The
computing market is the largest market segment but is forecasted to grow at a
slower pace than the communications market segment.
In order to capitalize on this large and growing market, we believe that there are
several key market dynamics that companies within the industry and investors
should consider:
The emergence of a three-tier market the main three markets are now
information technology, industrial/instrumentation, and military/aerospace.
There are several key The information technology market (computers and communications) is the
market dynamics in force fastest growing, with projected revenue growth between 15% and 20%.
which companies must
understand in order to The increasing importance of distributed power and point-of-load
succeed in the power technology We are forecasting dc/dc converters sold to the
supplies industry communications market to grow at an annual rate of 56% through 2003. This
growth is being driven by the adoption of distributed power architecture by
communications equipment manufacturers.
Stephens Inc. 77
The highly fragmented power supply industry is consolidating
The number of North Currently, there are 1,000 merchant power supply manufacturers worldwide.
American power supply
In 1998, approximately 725 of them generated less than $5 million in
manufacturers has
decreased to 250 from revenues. Numerous opportunities exist for consolidators. In the North
300 several years ago American market, the number of companies has decreased from 300 to 250
over the past several years.
More alliances are being formed Due to the complexity of the business,
companies are focusing on their strengths and compensating for weaknesses
through alliances.
PRODUCT PROFILE
This report will focus on Power supplies are electronic components that deliver the proper voltage and
ac/dc power supplies, current to various types of electronic equipment or to the various circuits within
dc/dc converters and the electronic equipment. As we define the industry, there are basically five
telecom power plants types of power supplies in common use today: 1) ac/dc power supplies, 2) dc/dc
converters, 3) telecom power plants, 4) uninterruptible power supplies and 5)
ac/dc inverters.
Chart 17
Power Supply Devices
In this industry report, we will focus on ac/dc power supplies, dc/dc converters,
and telecom power plants. Ac/dc power supplies and dc/dc converters are
manufactured for electronic OEMs (original equipment manufacturers). Telecom
power supplies, manufactured for communications service providers, is a
segment enjoying rapid growth. Power supplies have evolved through the years
from large, rack-mounted units employing vacuum tubes and dangerously high
Stephens Inc. 78
voltages to todays compact solid-state power supplies with their lower, and
relatively safe, dc voltages.
Electricity Review
Before we delve too deeply into our discussion of power supplies, we believe it
would be useful to review some basic information regarding electricity and its
distribution. There are two forms of electrical current, alternating current (ac)
and direct current (dc). With ac power, electrons flow back and forth, from
positive to negative several times per second. This flow represents the frequency
of the ac current. With dc power, electrons flow in one direction and at a
constant flow rate. Current is the movement of electrical charge and is measured
in amperes (amps). Voltage is the electrical pressure and is measured in volts.
Volts multiplied by amps equals the total power, which is typically referred to as
watts. (See Appendix D.)
There was a great debate when electric power distribution was in its infancy:
Electric utilities deliver Should the utility distribution infrastructure be developed to transmit ac power or
electricity in ac form dc power? Many influential scientists of the day, including Thomas Edison,
because it is cheaper backed dc power, believing it to be far more utilitarian for consumers. However,
and easier to distribute most industrialists favored the ac form because it was easier to transform (step
voltage up or down) and cheaper to transmit. Today, electric utilities deliver
power in ac form because it is indeed cheaper. Ac power can be stepped up and
down through the use of transformers to transmit power over long distances.
According to the electric utility industry, it is four to five times more expensive
to transmit dc power than it is to transmit ac power.
Additionally, the voltage and frequency at which the ac power is delivered varies
depending on the geographic region or country. Consequently, there is a wide
range of extremely high voltages available around the world to power the many
different types of electronic devices in use today. The following table lists the
distribution voltages and frequencies for selected countries.
Stephens Inc. 79
Table 12
AC Line Voltages Selected Countries
In most cases, the voltages identified in Table 12 are far more than most
electronic devices can handle. And as has already been stated, electronics are
powered by direct current, not alternating current. Therefore, we need power
supplies to accept the raw ac power from a power source, usually the electrical
wall outlet, process it, then deliver usable dc power to the many electronic
devices in use around the world.
Most modern electronic systems require more than a single operating voltage. In
The two basic types of a personal computer, the microprocessor needs 5 volts; semiconductor memories
power architecture are
may need 12 volts; analog circuits often operate on 15 volts; and the motors in
centralized and
distributed
disk drives require 24 volts. There are two types of power architectures that can
be designed to handle these requirements: centralized and distributed.
Stephens Inc. 80
Chart 18
Centralized Vs. Distributed Architecture
Centralized Distributed
FULLY Mounted
SEMI- Mounted
REGULATED on REGULATED on
System System
AC/DC Chassis
AC/DC Chassis
CONVERTER CONVERTER
Mounted
1.8VDC 3.3VDC REGULATED REGULATED
REGULATED REGULATED DC/DC DC/DC
on
OUTPUT OUTPUT CONVERTER CONVERTER Circuit
Boards
1.8VDC 3.3VDC
REGULATED REGULATED
OUTPUT OUTPUT
Even though distributed power architecture design is still relatively new, it does
Distributed power
offer one major benefit over centralized power architectures. That is the ability
architecture is required to provide point-of-load regulation. Simply stated, substantial improvements can
when voltages drop be realized in electrical performance by moving the dc/dc converter away from
below 3.3 volts the ac/dc power supply and moving it as close to the load as possible. The farther
the voltage is bussed to the load, the greater the voltage loss. The benefits of
distributed power architecture are numerous. The handicap is usually price.
For example, it is not uncommon to see ac/dc centralized power systems selling
Distributed power for $0.15 to $0.30 per watt. Therefore, to be reasonably competitive with the
architecture is perceived traditional centralized power systems, dc/dc converters would need to be priced
to be more costly at approximately $0.20 per watt, because the cost of the ac/dc front-end rectifier
(approximately $0.10 per watt) to complete the total system must be added. Once
the $0.20 per watt dc/dc conversion barrier is broken, the market for these
converters could expand exponentially.
Recent studies, particularly those done on systems that require redundancy, have
indicated that the overall cost of the distributed power system is actually less than
the traditional architectures. We believe that the number of distributed power
architecture systems will grow rapidly in the future. The total dollars spent in
North America on distributed power architecture are expected to increase from
approximately $1 billion in 1999 to $2.5 billion in 2004, as depicted in Chart 19.
Stephens Inc. 81
Chart 19
North American Consumption of
Distributed Power Architecture
CAGR: 19.3%
$3.0
$2.5
$2.0
(BIllions)
$1.5
$1.0
$0.5
$0.0
1999 2000E 2001E 2002E 2003E 2004E
The ac/dc power supply segment makes up the largest portion of the OEM power
Ac/dc power supplies are supply market and is the most widely used. Most large power supply
the most widely used types manufacturers offer multiple ac/dc power supplies in their product mix.
of power supplies
Although ac/dc power supplies should remain the largest sector, this sector is not
growing as fast as dc/dc converters.
There are many growth areas for the ac/dc power supply segment, ranging from
personal computers with their associated peripheral equipment to engineering
workstation servers and networking equipment. Ac/dc power supplies have
benefited from the computer and communications revolution. However, a move
to distributed architecture has eroded the growth rates of ac/dc products.
No significant new technological advances have been introduced in the last few
years. The technology has been more evolutionary in nature than revolutionary.
Ac/dc power supply In contrast, over the last 15 years, technology has dramatically increased the
technology has been speed of personal computers while reducing the size and lowering the cost. This
evolutionary not has not been the case for ac/dc power supplies. Advances have been made but at
revolutionary a more evolutionary pace. The immediate future promises more of the same.
There does not appear to be a major technological breakthrough on the horizon
that will dramatically impact the power electronics industry. In fact, the trend is
to less complex ac/dc front-end components that are sold in conjunction with
distributed power architectures.
Basic technology has not been a big marketing/selling advantage. The focus is
on manufacturing efficiencies and the resulting low price. For this reason China
and other low-labor-rate countries have emerged as the choice manufacturing
locations. As a result, there are several Taiwan-based power supply companies
that are prospering, including Delta Electronics, Lite-On, and AcBel. The Asian
manufacturers dominate the low-end, commodity-like power supply market
segment. This type of low-end power supply goes in electronic equipment
ranging in sophistication from a PC on down. Delta is the undisputed leader in
this market and remains the company that is responsible for setting pricing
benchmarks.
Stephens Inc. 82
Chart 20
Simple AC/DC Power Supply
AC
Wall
Power
In
Voltage DC
Rectifier Filter
Regulator Current
Stephens Inc. 83
Table 13
Pricing Trends In AC/DC Power Suppliers
($/watt)
There are two types of ac/dc power supply technologies in use today: linear and
switching. Linear regulation is a mature power supply design technique. While
Switching power
supplies incorporate linear power supplies have many desirable characteristics such as simplicity, low
power semiconductors noise, excellent line and load regulation, and fast recovery time, they are not
in their design particularly noted for their efficiency. Efficiency is the measure of total output
power to total input power. Input power that is not converted to output power
manifests itself in the form of heat, an undesirable and potentially damaging
byproduct.
Switching power supplies are made with power semiconductors and are much
more complex than linears. They are popular due to their high efficiency and
high power density. Table 14 compares some of the features of linear and
switching power supplies. Line and load regulation are usually better with linear
power supplies, but switching power supplies excel in output regulation.
Table 14
Linear Vs. Switching Power Supplies
Stephens Inc. 84
Switching power supplies are not new. They were developed in the 1960s and
Switching power used primarily in military and aerospace systems. However, in recent years
supplies were first used switching technology has improved, and the cost of switching components has
in military and come down significantly, leading to practical industrial- and consumer-grade
aerospace applications switching power supplies. Switchers began by replacing the large linear units
because of size and heat dissipation problems and have been gradually working
their way down to lower power levels.
Efficiency
Size
In general, at lower power levels, linears are the power supply of choice, while
switchers are generally employed at high power levels. Three general parameters
can be used to compare linears and switchers: relative cost per watt, regulation
versus transient response time, and power density (watts per cubic inch).
Stephens Inc. 85
Custom, Standard and Modified Standard Products
Ac/dc power supplies typically fall into one of three classes: custom, standard, or
modified standard. Power supply manufacturers are sometimes identified as
being a custom manufacturer or a standard manufacturer. In reality, most of the
larger suppliers manufacture both types of components.
Custom power supplies, as the name implies, are custom-designed for a specific
application. The life of a custom power supply typically matches the life of the
product for which it was designed. Custom products tend to sell in higher
volumes and generate lower gross margins.
Modified standard power supplies are standard products that have been slightly
Power supplies usually reconfigured. This saves time as compared to waiting for a custom product to be
account for 2% to 5% of designed and produced. Since a power supply component is only 2%-5% of the
product costs cost of a product, reducing time-to-market for an OEM can generate substantial
incremental revenue opportunities for the OEM.
Output Segmentation
Another way to segment the ac/dc power supply product lines is by the output
watts. Table 15 summarizes the low, medium and high power ranges.
Stephens Inc. 86
Table 15
Output Segmentation
% of No.
Power Range American
Characteristics Market End-Users
DC/DC CONVERTERS
As new applications expanded into these and other markets, the unsuitability of
the original devices became obvious. Consequently, a number of power supply
manufacturers, led by Lucent Technologies, have developed product lines that
are more suitable to the emerging markets. Along with Vicor and Lucent,
companies that participate in the dc/dc converter space are Power-One, Artesyn,
Stephens Inc. 87
Ericsson, Emerson Electric, Lambda/Invensys, C&D Technologies, and privately
owned R.O. Associates, PowerCube, Galaxy, Di/Dt and Syncor.
Dc/dc converters act as Dc/dc converters are widely used to transform and distribute dc power within
transformers to produce electronic devices. Dc power is typically made available to a system by an ac/dc
the desired voltage power supply or battery. This power may be in the form of 5V, 24V, 48V or
other dc voltages, may be poorly regulated and have a high noise content. A
dc/dc converter acts as a transformer to produce the desired output voltage in a
usable form.
The dc/dc converter can be defined by its power density (watts per cubic inch)
Several new start-ups and within power electronics is perceived as high-tech. In the last few years,
are focusing exclusively
more companies making ac/dc power supplies have successfully entered the
on dc/dc converters
dc/dc converter market. Additionally, several new start-up companies like Di/Dt
and Syncor focus exclusively on the dc/dc market.
While prices are expected to decline in the dc/dc market, we do not expect them
to decline as much as they have in the ac/dc market. The following Table
illustrates dc/dc converter price ranges for 1999 and the estimated ranges in
2004.
Stephens Inc. 88
Table 16
DC/DCConverter Pricing Trends
($/Watt, 500-Piece Quantity)
Telecom power plants are components that are external to the equipment that
they power. Telecom power plants include ac/dc rectifiers/battery chargers,
Telecom power plants
dc/dc converters, power distribution panels, and monitoring and control systems.
power the
communications
Telecom power plants are also called energy systems or battery power
infrastructure plants. The products are used in traditional wireline installations to power the
equipment in central offices, in fiber-optic networks to power regeneration sites
and in wireless applications to power mobile phone switching offices and
antenna sites.
Stephens Inc. 89
data traffic from telephones, PCs, pagers, personal digital assistants (PDAs) and
wireless phones is carried through the air and over copper lines, coaxial cables
and glass fibers and converges at the central office. In other words, there is a lot
of power hungry equipment in a central office.
To ensure that this equipment is up and running around the clock, service
providers install an uninterruptible power supply (UPS) system. This UPS
system usually consists of a telecom power plant, generators and batteries. The
power plant is the brain of the UPS system. It rectifies the electric utilitys
alternating current to a 48-volt direct current that is used to power all of the
communications equipment at the site. In addition to powering the equipment,
the telecom power supply system keeps the batteries charged and, in the event of
a power outage, draws electricity from the batteries until the back-up generators
can come on line. Once on line these generators act as the primary power source,
which still needs to be rectified by the power supply rack before being bussed to
the communications equipment. All this switching takes place without the
microprocessors in a router ever knowing its power source was compromised.
With all this equipment competing for floor space in a building that was probably
Switch-mode telecom originally designed to handle only voice traffic, size matters. The power plants
power supplies take up that have dominated these installations in the past are called ferro-resonant power
less space than ferro- plants. We estimate that ferro-resonant power plants still power over 50% of the
resonant power supplies telecom market. However, as space availability becomes more critical, telecom
switch-mode power plants have become much more attractive. Telecom switch-
mode power plants use one-fifth of the space required by ferro-resonant power
plants. Although it will not happen overnight, we expect switch-mode power
plants to be the power plant of choice going forward for these backbone
companies. A second advantage is that repairs can be made to switch-mode
power supplies much faster rate than to ferro-resonant power supplies.
The growth of the power supplies industry has paralleled that of the general
The growth of the power
supply industry will be
electronics industry. The proliferation of electronic equipment within the past 15
driven by strong demand years has created greater demand for power supplies. Going forward, growth
for communications prospects remain bright due to increasing demand from end-uses such as servers,
applications storage devices, networking equipment for Internet services and
telecommunication equipment for wireless applications.
We believe that the power supply industry is in the midst of major change. The
evolving nature of the industry is summarized in Table 17.
Stephens Inc. 90
Table 17
Power Supply Industry
Yesterday Tomorrow
Old industry which has not Older industry that still hasnt reached maturity
yet reached maturity
Stephens Inc. 91
Table 18
Ten Largest North American
Power Supply Companies* - 1999 Sales
($ in millions)
1999 North
Manufacturers American Sales
Delta Electronics $550
The Company with the
most revenue derived in
Astec/APS/Emerson Electric 460
North America in 1999 Lucent Technologies 340
was Taiwanese-based Artesyn Technologies 335
Delta Lite-On 210
Celestica Power Systems 170 - 190
Power-One 150 - 155
Vicor 143
Cherokee International 130
Lambda Electronics/Invensys 125
The worldwide power supply market is even more fragmented than the U.S.
market. A list of the top 15 power electronics companies in the world along with
their worldwide sales figures for 1999 is provided below.
Table 19
Largest Worldwide Power Supply Companies* - 1999 Sales
($ in millions)
Stephens Inc. 92
Barriers to Entry
Even though the industry is mature, few barriers to entry exist. The expertise
required to construct a low-power-range power supply is relatively low.
However, just having a working power supply does not necessarily lead to a
profitable business. With no industry standards for power supplies, it is very
difficult to design out an existing power component, which prevents large
companies from quickly gaining market share.
Foreign Competition
Foreign competition has become difficult to define in the power supply industry
Taiwan is home to more because many U.S. companies are owned by foreign ones. Moreover, many U.S.
power supply companies have manufacturing locations in low-labor-rate countries like Mexico
manufacturers than any and China, making it possible for them to manufacture products as competitively
other country as a foreign supplier. This capability is especially important for ac/dc
manufacturers, but not as key for dc/dc converter makers. Taiwan has the largest
number of power supply manufacturers, with more than 100 that sell either
directly or indirectly to U.S. companies.
The Asian manufacturers have historically dominated the low end of the power
supply market. By low end, we are talking about commodity-like power supplies
that are found in consumer electronics and PCs. The line dividing the low end of
the market and the mid to high end is moving up. A case study of the computer
workstation and enterprise-level file server markets is an excellent way to convey
whats happening at this critical delineation point in the market.
Chart 21
Global Power Electronics Market*
($ in Billions)
1999
North
America
$11.4
$15.2
Foreign
In 1999, the North
American market
accounted for
approximately 43% of
the overall market. It
is expected to
increase to 46% 2004
of the total market by
North
2004
America
$23.5 $19.7
Foreign
Stephens Inc. 94
estimate that, in 1999, the telecom high-density dc/dc converter market was
around $1 billion. However, by 2003, the market is expected to reach
approximately $6 billion, making it the fastest growing segment of the power
supply business.
Chart 22
Global Power Supplies Consumption
$30.0
$25.0
$Billions $20.0
$15.0
$10.0
$5.0
$0.0
1999 2000E 2001E 2002E 2003E 2004E
AC/DC DC/DC
The third segment, telecom power plants, is expected to grow at a rapid pace (see
Dc/dc converters are Chart 23). Telecom power plants include ac/dc rectifiers/battery chargers, dc/dc
forecasted to grow faster converters, power distribution panels, and monitoring and control systems.
than ac/dc power Telecom power supplies can also be called energy systems or battery power
supplies plants.
Stephens Inc. 95
Chart 23
Global Telecom Power Plant Consumption
$10.0
$8.0
(Billions)
$6.0
$4.0
$2.0
$0.0
1999 2000E 2001E 2002E 2003E 2004E
Market Segments
In the last few years, the communications segment has emerged as the fastest-
growing segment, mainly due to the demands of the networking equipment and
portable communications devices. Add to that the increasing growth of
Communications is the
fastest-growing market telecommunications in underdeveloped nations as well as upgrades to current
segment systems, and its easy to predict that this sector will continue to grow. According
to Standard & Poors, the global communications equipment industry will grow at
a 15% clip in 2000 and 2001, with certain segments growing much faster. Some
of the exceptionally high-growth segments are served by companies under our
coverage list, including optical networking, wireless, and Internet access.
The computing market segment is the largest of the power electronics markets.
With continued improvements in PCs and peripheral devices, along with growth
in the sale of minicomputers and supercomputers, this market is expected to
continue to show steady growth. According to eTForecasts, worldwide PC
revenues in 1999 were $226.3 billion (we are grouping servers, desktop PCs, and
mobile PCs under the term PC). By 2005, PC revenues should reach around
$356.9 billion, for a CAGR of approximately 8%. The CAGR for unit shipments
will be much higher over the same time frame, around 12.5%, due to significant
price declines. For many companies, the products and services for this segment
are not significantly different than those for the communications segment.
The industrial market segment has remained a lucrative segment for the
The industrial market
participants, but it is not a high-growth segment. However, due to a rebound in
has improved as a result
of the increase in
the semiconductor capital equipment market beginning in 1999, the growth rate
demand for has increased somewhat. Capital spending has also increased in this market
semiconductor capital within the last year, signifying further growth prospects. This is the only
equipment segment that has not gone through a fundamental change like computers and
telecommunications. The market is smaller, and the participants are entrenched.
Most ac/dc power supply manufacturers serving the military have had declining
sales for many years, while dc/dc converter manufacturers have grown modestly.
Though this market is not expected to grow dramatically over the next several
years, the steep decline may be behind us. Most experts believe that the period
Stephens Inc. 96
of massive downsizing in defense spending has ended, and there might be
increased military spending going forward as new platforms come to the market.
Additionally, the retrofit business has been increasing as well as the commercial
aerospace business, mainly from increasing airplane production by Boeing and
The decline in military Airbus. Our defense forces are expected to increase purchases of electronic
power electronics sales components as they upgrade their current systems. An upside of the downsizing
appears to have that has occurred in the military is the decrease in captive defense power
bottomed out
electronics manufacturers. With fewer contracts being awarded, defense
contractors must cut back on departments, often cutting the power supply
division. These cuts have led to an increase in military purchases of power
electronics from the merchant market.
Chart 24
North American Power Supplies
Consumption by Market Segment
$12.0
$11.0
$10.0
$9.0
The networking/ $8.0
($ in billions)
Computers & Peripherals (7.1% CAGR) Net working/T elecom (14.2% CAGR)
Indust rial (5.6% CAGR) Military (5.7% CAGR)
The merchant market There are two main categories which power supplies manufacturers fall under,
should grow at around merchant and captive. A merchant manufacturer is an independent entity that
12% through 2004, sells power supplies to various vendors. A captive manufacturer, also called in-
much faster than the house manufacturer, is a manufacturer that makes power supplies for its own use
captive market and does not sell to outside vendors. The merchant market has been experiencing
strong growth the past year and is expected to remain strong going forward, with
a 1999 to 2004 CAGR of 12.1%. The chart on the following page illustrates the
demand for merchant switching power supplies in the North American market.
Stephens Inc. 97
Chart 25
North American Merchant Power Supplies Consumption
$9.0
$8.0
$7.0
$6.0
($ in billions)
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
1999 2000E 2001E 2002E 2003E 2004E
When breaking down the merchant market by product (ac/dc power supplies and
dc/dc converters), the dc/dc side is growing at a much faster rate. In 1999, dc/dc
merchant sales totaled approximately $1.2 billion. Dc/dc merchant sales are
expected to grow to $3.1 billion by 2004, a CAGR of 21.0%. On the other hand,
ac/dc sales in 1999 were $3.6 billion and are expected to reach $5.4 billion by
2004, representing a CAGR of 8.4%.
Increased Outsourcing
Stephens Inc. 98
Chart 26
North American Power Supplies Consumption
(Merchant vs. Captive)
25.5%
25.8%
26.9%
28.4%
30.0%
34.4%
74.5%
74.2%
73.1%
71.6%
70.0%
65.6%
Merchant Captive
Consolidating Industry
There is a widening gap between large and small companies. The recent growth
in the industry has created a few large companies for the first time in the
The power supply
industry continues to be
industrys history (see Chart 27). The lack of standards and the possibility of
ripe for consolidation niche markets are making it possible for hundreds of smaller manufacturers to
survive in the industry but, at the same time, the technology development,
financial strength, and marketing expertise required to participate in this industry
warrant a larger organization. This dichotomy will influence the evolution
towards an industry with a few large companies supplying a generic product
Stephens Inc. 99
and many smaller companies supplying products for niche markets. There are
now around 250 power supply companies in North America, down from 300 a
few years ago.
Chart 27
Fragmented Merchant Power Supply Industry
(1998 Sales In Millions)
30 Companies
$100 - 299
101 Companies
$20 - 100
133 Companies
$5 - 20
723 Companies
UNDER $5
The power supply industry is moving from one that was made up of small private
Merger and acquisition companies to one that is composed principally of either public companies or
activity is almost divisions of larger companies. We feel that acquisition and merger activity, is
commonplace in the driving this trend. Over the last several years, a significant amount of
power supply industry consolidation has taken place in the industry. Table 20 highlights a few of the
most recent deals.
Chart 28 illustrates the expected consolidation in the power supply industry. The
amount of the merchant power supply market held by the top ten OEM
companies is projected to grow significantly from 1999 to 2004.
Chart 28
North American Market Share
Held by Top 10 Merchant Power Supply Manufacturers
1999 2004
Rest
Rest Top 10 30.8% Top 10
45.6% 54.4% 69.2%
In our opinion, the industry will most certainly continue its consolidation trend.
The larger companies will look to broaden their product lines and sales channels
by acquiring smaller, niche players. Additionally, size, and the attributes that
normally accompany it, such as greater financial leverage, larger customer
service departments, larger R & D budgets, broader product lines, and greater
distributor influence, will become more and more important as competitors battle
for market share.
Finally, the power supply industry is not unlike other industries; those companies
that best understand their customers needs and design and deliver products that
meet those needs will likely be the most successful.
High: 43.13
ARTESYN TECHNOLOGIES INC
Price (close on 9/15/00): $37.50 ATSN 9/15/99 to 9/15/00
Low:
Last:
15.00
37.50
USD
35
Debt/Capital: 23.8% 20
Price Target (12-month): $52 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Wireless
6% Other
Computing/storage 6%
and networking make Internet
Computing/
up the bulk of ATSNs Access
Storage
revenues. Going 7%
46%
forward, we see the
wireless and internet
access revenues
growing the fastest Carrier/
Enterprise/
Networking
35%
R&D spending has been on the rise. Artesyn has increased its new product
introductions through increased spending on R&D. Several quarters ago,
management announced its intention to increase spending by approximately $6
million, which reduced our FY00s EPS estimate by ten cents. The reason for the
investment increase was to expand ATSNs presence in high-growth Internet
Artesyn had 57 new applications such as routers, mass-storage, servers, fiber channels, fiber
program wins during switching, and DSL. Through the first six months of FY00, ATSN recorded 57
the first six months of new program wins and is well on its way to surpassing its goal of 75 by year-end.
FY00
The success of Artesyns new products provides us with additional comfort in
our earnings projections for FY01. The new non-isolated dc/dc converters
designed for the mid- to low-end server market and the new high-voltage
products designed for wireless base stations are beginning to gain footing in the
marketplace. During ATSNs most recent quarter, the Company had two
program wins for low- to mid-range servers that should generate $60 million in
annual revenue at full production.
Stephens Inc. maintains a market in the common stock of Artesyn Technologies and may act as
principal in these transactions.
Sales $ 135.1 $ 150.4 $ 152.8 $ 155.8 $ 159.6 $ 164.3 $ 179.0 $ 193.0 $ 192.1 $ 201.9 $ 212.0 $ 223.9 $ 532.4 $ 594.2 $ 695.9 $ 829.9
Cost of Sales 101.6 112.3 111.9 114.7 118.6 119.2 130.7 140.9 140.4 147.4 154.5 162.8 392.9 440.5 509.3 605.1
Gross Profit 33.5 38.1 40.9 41.1 41.1 45.2 48.3 52.1 51.7 54.5 57.5 61.1 139.5 153.7 186.7 224.8
SG&A 13.6 12.9 12.9 13.0 14.8 17.6 17.8 18.2 18.5 18.7 19.0 19.3 54.5 52.4 68.4 75.5
R&D 8.9 9.4 9.2 8.9 10.3 10.8 12.4 12.8 13.1 13.3 13.6 13.8 33.4 36.4 46.3 53.8
Operating Income 11.1 15.9 18.8 19.1 15.9 16.7 18.1 21.1 20.1 22.6 24.9 28.0 51.6 64.9 71.9 95.6
Interest (Income)/Expense 0.3 0.4 0.5 0.4 0.6 0.9 1.0 1.0 1.0 1.0 0.9 0.9 1.6 1.7 3.5 3.8
Other (Income)/Expense - - - - - - - - - - - - - - - -
Pretax Income 10.8 15.4 18.3 18.7 15.4 15.8 17.1 20.1 19.1 21.6 24.0 27.1 50.0 63.2 68.4 91.8
Taxes 3.4 5.0 5.9 5.5 4.8 5.2 5.7 6.6 6.3 7.1 7.9 9.0 16.6 19.8 22.3 30.3
Net Income $ 7.3 $ 10.4 $ 12.5 $ 13.2 $ 10.6 $ 10.6 $ 11.5 $ 13.5 $ 12.8 $ 14.4 $ 16.1 $ 18.2 $ 33.4 $ 43.4 $ 46.1 $ 61.5
Average Shares - Diluted 39.1 38.9 39.3 38.7 38.4 38.8 38.9 39.0 39.4 39.5 39.7 39.9 40.6 39.0 38.8 39.6
GAAP EPS - Diluted $ 0.19 $ 0.27 $ 0.32 $ 0.34 $ 0.28 $ 0.27 $ 0.30 $ 0.35 $ 0.32 $ 0.37 $ 0.41 $ 0.46 $ 0.82 $ 1.11 $ 1.19 $ 1.56
Cash EPS - Diluted $ 0.20 $ 0.28 $ 0.33 $ 0.35 $ 0.29 $ 0.32 $ 0.35 $ 0.40 $ 0.37 $ 0.42 $ 0.46 $ 0.50 $ 0.86 $ 1.16 $ 1.36 $ 1.75
Depreciation & Amortization $ 4.7 $ 4.8 $ 5.6 $ 5.0 $ 5.7 $ 6.7 $ 7.0 $ 7.1 $ 7.2 $ 7.4 $ 7.5 $ 7.7 $ 16.9 $ 20.1 $ 26.5 $ 29.8
EBITDA $ 15.8 $ 20.7 $ 24.4 $ 24.1 $ 21.6 $ 23.4 $ 25.1 $ 28.2 $ 27.3 $ 30.0 $ 32.4 $ 35.7 $ 68.5 $ 85.0 $ 98.3 $ 125.4
Margin Analysis
Gross Profit 24.8% 25.3% 26.8% 26.4% 25.7% 27.5% 27.0% 27.0% 26.9% 27.0% 27.1% 27.3% 26.2% 25.9% 26.8% 27.1%
SG&A 10.0% 8.6% 8.4% 8.4% 9.3% 10.7% 9.9% 9.4% 9.6% 9.3% 9.0% 8.6% 10.2% 8.8% 9.8% 9.1%
R&D 6.6% 6.2% 6.0% 5.7% 6.4% 6.6% 6.9% 6.6% 6.8% 6.6% 6.4% 6.2% 6.3% 6.1% 6.7% 6.5%
Operating Income 8.2% 10.5% 12.3% 12.3% 10.0% 10.2% 10.1% 10.9% 10.5% 11.2% 11.8% 12.5% 9.7% 10.9% 10.3% 11.5%
Pretax Income 8.0% 10.3% 12.0% 12.0% 9.6% 9.6% 9.6% 10.4% 9.9% 10.7% 11.3% 12.1% 9.4% 10.6% 9.8% 11.1%
Net Income 5.4% 6.9% 8.2% 8.5% 6.6% 6.4% 6.4% 7.0% 6.7% 7.2% 7.6% 8.1% 6.3% 7.3% 6.6% 7.4%
Tax Rate 32.0% 32.5% 32.0% 29.6% 31.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.2% 31.4% 32.5% 33.0%
Percent Change
Sales -8.2% 23.5% 22.6% 12.3% 18.1% 9.2% 17.2% 23.9% 20.3% 22.9% 18.4% 16.0% 1.0% 11.6% 17.1% 19.2%
Gross Profit -12.2% 17.6% 20.2% 17.9% 22.4% 18.5% 18.1% 26.8% 25.9% 20.7% 19.0% 17.3% -1.6% 10.1% 21.5% 20.5%
SG&A -5.4% -10.5% -3.6% 5.1% 9.1% 36.8% 37.9% 39.6% 24.9% 6.1% 6.7% 6.0% 5.7% -3.9% 30.6% 10.3%
R&D -1.0% 13.1% 9.6% 15.6% 16.1% 15.6% 34.4% 43.0% 27.2% 22.2% 9.7% 8.1% 11.6% 9.0% 27.2% 16.1%
Operating Income -25.6% 62.9% 53.6% 30.0% 43.6% 5.2% -3.5% 10.5% 25.9% 35.2% 37.5% 32.6% -14.3% 25.7% 10.8% 33.0%
Pretax Income -25.9% 64.9% 53.4% 32.1% 43.0% 2.3% -6.6% 7.5% 24.1% 36.6% 40.3% 34.9% -12.6% 26.5% 8.2% 34.2%
Taxes -30.2% 57.7% 48.5% 22.2% 38.5% 3.8% -3.6% 20.0% 32.1% 36.7% 40.3% 34.9% -7.3% 19.7% 12.2% 36.1%
Net Income -23.6% 68.6% 55.9% 36.7% 45.1% 1.6% -8.0% 2.3% 20.5% 36.5% 40.3% 34.9% -15.1% 29.9% 6.4% 33.3%
GAAP EPS - Diluted -18.9% 77.9% 60.2% 39.8% 47.6% 1.7% -6.9% 1.5% 17.4% 34.3% 37.5% 32.1% -16.0% 35.2% 7.0% 30.6%
Cash EPS - Diluted -16.7% 75.0% 57.1% 40.0% 45.0% 14.3% 6.1% 14.3% 27.6% 31.3% 31.4% 25.0% -15.7% 34.9% 17.2% 28.7%
* FY98 figures do not include an after-tax, merger-related charge of $9.6 million.
Source: Company reports and Stephens Inc. estimates
High: 61.38
C&D TECHNOLOGIES INC
Price (close on 9/15/00): $52.50 CHP 9/15/99 to 9/15/00
Low:
Last:
15.50
52.50
USD
60
52-Week Range: $61.38 - $15.50 50
Debt/Capital: 31% 20
Price Target (12-month): $64 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Sales $ 99.6 $ 111.8 $ 126.8 $ 127.3 $ 133.5 $ 146.6 $ 152.0 $ 154.0 $ 160.0 $ 167.5 $ 173.5 $ 175.0 $ 314.0 $ 465.6 $ 586.0 $ 676.0
Cost of Sales 72.7 82.1 93.6 92.4 94.4 103.4 107.2 108.6 112.8 118.1 122.3 123.4 227.8 340.8 413.5 476.6
G ross Profit 26.9 29.7 33.3 34.9 39.1 43.1 44.8 45.4 47.2 49.4 51.2 51.6 86.2 124.7 172.5 199.4
SG& A 13.0 14.5 15.2 15.3 16.4 16.9 17.3 17.4 17.9 18.8 19.2 19.3 40.3 57.9 68.0 75.2
R& D 2.3 2.2 2.2 2.2 2.5 2.5 2.7 2.9 3.1 3.2 3.3 3.3 8.3 9.0 10.6 12.9
O perating Incom e 11.6 13.0 15.9 17.3 20.3 23.7 24.8 25.1 26.2 27.5 28.7 29.0 37.6 57.8 93.9 111.4
Interest Expense 1.6 1.9 2.2 2.1 2.2 1.4 1.2 1.0 0.8 0.7 0.4 0.2 0.1 7.9 5.8 2.1
Other Expense - - - - - - - - - - - - 0.2 - - -
Pretax Incom e 10.0 11.1 13.7 15.2 18.1 22.287 23.6 24.1 25.4 26.8 28.3 28.8 37.2 49.9 88.1 109.3
Taxes 3.6 4.0 5.2 5.6 6.8 8.3 8.7 8.9 9.4 9.9 10.5 10.7 13.2 18.3 32.8 40.4
M inority Interest - - 0.3 0.3 0.3 0.6 0.5 0.5 0.5 0.5 0.5 0.5 - 0.6 1.8 2.0
N et Incom e $ 6.4 $ 7.1 $ 8.2 $ 9.3 $ 11.1 $ 13.4 $ 14.4 $ 14.7 $ 15.5 $ 16.4 $ 17.3 $ 17.7 $ 24.1 $ 30.9 $ 53.5 $ 66.8
A verage Shares 25.7 26.3 26.1 26.5 26.8 27.4 27.6 27.8 28.0 28.6 29.0 29.4 25.7 26.2 27.4 28.8
EPS $ 0.25 $ 0.27 $ 0.31 $ 0.35 $ 0.41 $ 0.49 $ 0.52 $ 0.53 $ 0.55 $ 0.57 $ 0.60 $ 0.60 $ 0.94 $ 1.18 $ 1.95 $ 2.32
D epreciation & A mortization $ 4.9 $ 5.9 $ 5.8 $ 5.8 $ 5.9 $ 6.1 $ 6.3 $ 6.6 $ 6.6 $ 6.6 $ 6.7 $ 6.7 $ 11.8 $ 22.4 $ 24.9 $ 26.6
EBITDA $ 16.5 $ 18.9 $ 21.7 $ 23.1 $ 26.2 $ 29.8 $ 31.1 $ 31.7 $ 32.8 $ 34.1 $ 35.4 $ 35.7 $ 49.3 $ 80.2 $ 118.8 $ 138.0
M argin A nalysis
G ross Profit 27.0% 26.6% 26.2% 27.4% 29.3% 29.4% 29.5% 29.5% 29.5% 29.5% 29.5% 29.5% 27.4% 26.8% 29.4% 29.5%
SG& A 13.1% 12.9% 11.9% 12.1% 12.3% 11.5% 11.4% 11.3% 11.2% 11.2% 11.1% 11.0% 12.8% 12.4% 11.6% 11.1%
R& D 2.3% 2.0% 1.8% 1.7% 1.9% 1.7% 1.8% 1.9% 1.9% 1.9% 1.9% 1.9% 2.6% 1.9% 1.8% 1.9%
O perating Incom e 11.7% 11.6% 12.5% 13.6% 15.2% 16.2% 16.3% 16.3% 16.4% 16.4% 16.5% 16.6% 12.0% 12.4% 16.0% 16.5%
Pretax Incom e 10.0% 9.9% 10.8% 11.9% 13.6% 15.2% 15.5% 15.7% 15.9% 16.0% 16.3% 16.5% 11.9% 10.7% 15.0% 16.2%
N et Incom e 6.4% 6.4% 6.5% 7.3% 8.3% 9.1% 9.5% 9.5% 9.7% 9.8% 10.0% 10.1% 7.7% 6.6% 9.1% 9.9%
Tax R ate 36.1% 35.8% 38.0% 36.8% 37.4% 37.4% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 35.3% 36.8% 37.2% 37.0%
D epreciation & A mortization 4.9% 5.3% 4.6% 4.6% 4.4% 4.2% 4.1% 4.3% 4.1% 3.9% 3.9% 3.8% 3.7% 4.8% 4.2% 3.9%
EBITDA 16.6% 16.9% 17.1% 18.2% 19.6% 20.4% 20.5% 20.6% 20.5% 20.3% 20.4% 20.4% 15.7% 17.2% 20.3% 20.4%
Percent C hange
Sales 26.2% 39.6% 55.4% 73.5% 34.0% 31.1% 19.8% 21.0% 19.9% 14.3% 14.1% 13.6% 1.9% 48.3% 25.9% 15.3%
Cost of Sales 24.9% 40.8% 62.0% 72.8% 29.8% 25.9% 14.5% 17.5% 19.5% 14.2% 14.1% 13.6% 0.4% 49.6% 21.3% 15.2%
G ross Profit 30.0% 36.6% 39.5% 75.4% 45.4% 45.3% 34.8% 30.3% 20.7% 14.6% 14.1% 13.6% 6.2% 44.8% 38.3% 15.6%
SG& A 36.7% 42.7% 34.3% 62.8% 26.0% 16.8% 14.3% 13.4% 9.4% 11.2% 10.8% 10.9% 2.6% 43.6% 17.3% 10.6%
R& D 13.0% 9.9% 7.8% 4.7% 8.0% 13.4% 21.0% 30.5% 24.8% 26.0% 22.2% 13.8% -4.1% 8.8% 18.1% 21.4%
O perating Incom e 27.0% 35.7% 51.3% 107.5% 74.5% 82.4% 56.2% 45.1% 29.3% 15.7% 15.6% 15.5% 13.1% 53.9% 62.4% 18.6%
Pretax Incom e 9.9% 17.3% 31.1% 83.2% 81.7% 101.1% 72.6% 59.0% 40.2% 20.1% 19.8% 19.5% 19.9% 34.0% 76.6% 24.0%
Taxes 8.8% 14.9% 41.7% 104.4% 88.2% 110.3% 68.2% 59.9% 38.6% 18.8% 19.8% 19.5% 15.8% 39.4% 78.7% 23.3%
N et Incom e 10.8% 18.6% 20.9% 66.7% 73.4% 88.2% 75.6% 58.8% 40.1% 22.2% 20.5% 20.1% 22.3% 28.5% 73.0% 24.9%
EPS 10.7% 16.0% 18.6% 61.9% 65.9% 80.5% 65.7% 51.3% 34.1% 17.1% 14.7% 13.6% 20.5% 26.0% 65.1% 19.0%
* Includes acquisition of the Industrial Battery business of Johnson Controls Inc. (JC I - $59.58) effective M arch 1, 1999. Excludes restructuring charges.
** D oes not include $2.0 million inventory write-down relating to the Power Electronics D ivision.
Source: C ompany reports and Stephens Inc. estim ates
High: 89.81
POWER-ONE INC
Price (close on 9/15/00): $84.63 PWER 9/15/99 to 9/15/00
Low:
Last:
4.88
84.63
USD
60
30
Debt/Capital: 3.8% 10
Price Target (12-month): $88 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
We expect PWERs organic revenue growth to be 50% to 60% over the next
two years. This type of growth is possible because of a series of four strategic
acquisitions that complemented PWERs legacy standard ac/dc power supply
We expect significant product line. The acquisition of International Power Devices allowed PWER to
earnings leverage on
quickly become an industry leader in the fast growing dc/dc converter market.
higher revenues
The more recent acquisitions of HC Power and Powec position the Company in
the telecom dc power plant business. An earlier acquisition of Melcher
significantly expanded Power-Ones sales presence in Europe. We estimate that
PWER will earn cash EPS of $0.80 in FY00 and $1.26 in FY01, increases of
168% and 57%, respectively. Revenue is expected to increase 109% in FY00
and 51% in FY01. Backlog at the end of the PWERs most recent quarter stood
at $196.0 million, up 81.0% sequentially and further reflecting the strength in
PWERs core markets.
Since acquiring International Power Devices (IPD) in January 1999, IPDs dc/dc
The Company is in the converter business has grown significantly faster than the market. We believe
process of expanding that this trend will continue over the next three years. In September of last year
capacity and should when we visited PWERs Mexico manufacturing facility where the converters
have 13 SMT lines in
are made, the Company had three surface mount technology (SMT)
place by the end of
FY00
manufacturing lines. Today, PWER has in place, or on order, thirteen SMT lines.
Each line is capable of producing between $40 million and $50 million per year
in revenue.
Demand for the telecom dc power plant product lines that were recently added
with the acquisitions of HC Power and Powec should also grow as a result of the
anticipated dc/dc converter growth. The telecom power plants provide the
regulated 48 volt dc bus that powers the equipment found in telecom central
offices and other telecom installations. This equipment (routers, optical
switches, lasers, etc.) that utilizes distributed power architecture is what is
driving the demand for the dc/dc converters. As the demand for dc/dc converters
grows, so too grows the demand for the telecom dc power plants. Management is
in the process of adding an additional 275,000 square feet in manufacturing space
to accommodate the expected growth.
Stephens Inc. maintains a market in the common stock of Power-One and may act as principal in
these transactions. An officer/director/employee of Stephens Inc. is a director of Power-One.
Affiliates of Stephens Inc. also control a substantial percentage of the outstanding common stock of
Power-One, Inc. Stephens Inc. has managed or co-managed an underwriting for Power-One
within the past three years.
A v e ra g e S h ares 5 7 .9 5 8 .2 5 9 .9 7 3 .9 7 2 .3 7 7 .1 7 7 .8 7 8 .4 7 9 .0 7 9 .4 7 9 .8 8 0 .0 5 8 .3 6 2 .5 7 6 .4 7 9 .6
G AAP EPS $ 0 .0 1 $ 0 .0 3 $ 0 .0 9 $ 0 .1 1 $ 0 .1 1 $ 0 .1 6 $ 0 .1 9 $ 0 .2 2 $ 0 .2 4 $ 0 .2 7 $ 0 .2 9 $ 0 .3 2 $ 0 .1 4 $ 0 .2 5 $ 0 .7 1 $ 1 .1 2
C a sh E P S $ 0 .0 3 $ 0 .0 5 $ 0 .1 0 $ 0 .1 2 $ 0 .1 3 $ 0 .1 9 $ 0 .2 3 $ 0 .2 6 $ 0 .2 8 $ 0 .3 0 $ 0 .3 3 $ 0 .3 5 $ 0 .1 8 $ 0 .3 0 $ 0 .8 0 $ 1 .2 6
D e p re cia tio n $ 1 .6 $ 2 .0 $ 2 .1 $ 2 .7 $ 2 .5 $ 2 .9 $ 2 .9 $ 3 .1 $ 3 .2 $ 3 .4 $ 3 .5 $ 3 .7 $ 3 .7 $ 8 .4 $ 1 1 .4 $ 1 3 .8
E B IT D A $ 4 .5 $ 7 .7 $ 1 2 .6 $ 1 4 .1 $ 1 5 .8 $ 2 6 .6 $ 3 0 .7 $ 3 5 .2 $ 3 8 .3 $ 4 2 .0 $ 4 5 .2 $ 4 8 .7 $ 1 7 .3 $ 3 8 .8 $ 1 0 8 .4 $ 1 7 4 .2
M a r g in A n a ly sis
G ro ss P ro fit 3 9 .5 % 4 1 .3 % 3 8 .2 % 4 1 .4 % 4 1 .6 % 4 1 .2 % 4 0 .5 % 4 0 .8 % 4 1 .1 % 4 1 .4 % 4 1 .6 % 4 1 .9 % 3 9 .0 % 4 0 .1 % 4 0 .9 % 4 1 .5 %
S e llin g 1 3 .6 % 1 2 .1 % 9 .2 % 9 .2 % 8 .6 % 7 .6 % 7 .2 % 7 .0 % 6 .8 % 6 .6 % 6 .5 % 6 .4 % 1 1 .5 % 1 0 .5 % 7 .5 % 6 .6 %
A d m in istra tiv e 7 .7 % 8 .2 % 6 .4 % 8 .6 % 8 .0 % 6 .6 % 6 .7 % 6 .5 % 6 .4 % 6 .3 % 6 .2 % 6 .2 % 7 .6 % 7 .7 % 6 .8 % 6 .3 %
E n g in ee rin g 8 .7 % 7 .8 % 6 .5 % 6 .6 % 6 .1 % 4 .8 % 6 .0 % 6 .0 % 6 .0 % 6 .0 % 6 .0 % 6 .0 % 6 .8 % 7 .2 % 5 .7 % 6 .0 %
Q u a lity 2 .1 % 2 .2 % 1 .7 % 1 .7 % 1 .6 % 1 .3 % 1 .4 % 1 .3 % 1 .3 % 1 .3 % 1 .3 % 1 .3 % 1 .7 % 1 .9 % 1 .4 % 1 .3 %
A m o rtiz atio n 3 .1 % 2 .6 % 1 .9 % 1 .8 % 1 .7 % 2 .4 % 2 .3 % 2 .1 % 2 .0 % 1 .9 % 1 .8 % 1 .7 % 2 .2 % 2 .2 % 2 .2 % 1 .8 %
O p e ra tin g In c o m e 4 .4 % 8 .4 % 1 2 .5 % 1 3 .5 % 1 5 .6 % 1 8 .4 % 1 6 .9 % 1 7 .9 % 1 8 .6 % 1 9 .3 % 1 9 .8 % 2 0 .3 % 9 .2 % 1 0 .6 % 1 7 .4 % 1 9 .6 %
T ax R a te 3 9 .3 % 4 3 .3 % 3 3 .4 % 2 4 .5 % 3 4 .0 % 3 3 .3 % 3 6 .5 % 3 6 .5 % 3 7 .0 % 3 7 .0 % 3 7 .0 % 3 7 .0 % 2 5 .0 % 3 1 .1 % 3 4 .8 % 3 7 .0 %
E B IT D A 1 1 .5 % 1 4 .9 % 1 7 .3 % 1 9 .0 % 2 0 .6 % 2 3 .4 % 2 1 .2 % 2 2 .0 % 2 2 .5 % 2 3 .1 % 2 3 .4 % 2 3 .8 % 1 4 .4 % 1 6 .4 % 2 1 .9 % 2 3 .2 %
P er c en t C h a n g e
S a les 26% 91% 160% 128% 98% 120% 100% 116% 121% 60% 33% 28% 30% 99% 109% 51%
G ro ss P ro fit 25% 99% 153% 144% 108% 120% 112% 113% 119% 61% 37% 31% 29% 104% 113% 53%
S e llin g 82% 143% 56% 69% 25% 39% 57% 65% 76% 38% 20% 17% 98% 82% 48% 33%
A d m in istra tiv e 21% 169% 109% 122% 107% 77% 109% 63% 76% 53% 23% 22% 33% 100% 85% 39%
E n g in ee rin g 98% 166% 157% 62% 38% 36% 83% 95% 119% 98% 33% 28% 116% 111% 67% 58%
Q u a lity 59% 95% 119% 257% 51% 32% 63% 63% 79% 58% 24% 33% 4% 120% 53% 44%
A m o rtiz atio n 140% 164% 100% 39% 8% 105% 151% 162% 157% 24% 0% 0% 29% 99% 109% 25%
O p e ra tin g In c o m e -6 0 % 10% 552% 628% 608% 382% 168% 186% 164% 68% 57% 45% -25 % 130% 242% 70%
N e t In co m e -7 4 % -3 9 % 329% 1086% 905% 569% 184% 119% 132% 72% 57% 45% -2 % 96% 242% 64%
GAAP EPS -7 4 % -3 9 % 317% 834% 705% 405% 119% 107% 112% 67% 53% 42% -26 % 83% 180% 58%
C a sh E P S -5 3 % -2 1 % 233% 414% 322% 283% 125% 117% 120% 59% 45% 35% 67% 168% 57%
High: 45.75
VICOR CORP
Price (close on 9/15/00): $42.25 VICR 9/15/99 to 9/15/00
Low:
Last:
17.50
42.25
USD
45
52-Week Range: $45.75 - $17.50 40
30
Debt/Capital: 0%
20
Price Target (12-month): $52 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Rating: BUY
Chart Courtesy of FactSet Research Systems Inc.
Company Description
Product Comparison
1st-Generation 2nd-Generation
Custom-Switching Component Component
Parameters Power Supply Power System Power System
Cost $0.15 to $1/ watt $0.50 to $2/ watt $0.35 to $2/ watt
Over the long term, we believe that the future is bright for Vicor, as well as for
other manufacturers that compete in the dc/dc converter market. The bottom line
is that the potential market is big enough for everybody. There is no doubt that
today the competition is stiffer than it was in 1984 when Vicor introduced its
revolutionary high-density dc/dc converter. However, Vicors second-generation
products still have the potential to make a significant technological leap forward
and reap the financial rewards that its innovations deserve.
Stephens Inc. maintains a market in the common stock of Vicor and may act as principal in these
transactions.
Stephens 118
Vicor Corporation
Historical Earnings Summary & Projections
(In millions, except per share amount)
Depreciation & Amortization $ 3.2 $ 3.9 $ 3.7 $ 3.8 $ 4.0 $ 4.0 $ 4.2 $ 4.3 $ 4.5 $ 4.7 $ 4.8 $ 4.9 $ 11.6 $ 14.6 $ 16.5 $ 18.9
EBITDA $ 7.8 $ 9.3 $ 11.1 $ 10.8 $ 13.2 $ 15.2 $ 16.8 $ 18.7 $ 20.8 $ 22.7 $ 24.7 $ 27.1 $ 30.0 $ 39.0 $ 63.9 $ 95.2
Margin Analysis
Gross Profit 44.5% 42.0% 43.3% 41.5% 42.9% 43.3% 43.5% 43.7% 44.0% 44.5% 45.0% 45.5% 44.9% 42.8% 43.4% 44.8%
SG&A 21.2% 19.1% 18.3% 19.2% 17.8% 16.9% 16.3% 15.6% 15.0% 15.0% 15.0% 14.9% 21.2% 19.4% 16.6% 15.0%
R&D 12.3% 10.9% 10.0% 9.3% 9.1% 8.5% 8.2% 8.2% 8.0% 8.0% 8.0% 8.0% 12.5% 10.5% 8.5% 8.0%
Operating Income 11.1% 12.0% 15.0% 13.1% 16.0% 17.8% 18.9% 20.0% 21.0% 21.5% 22.0% 22.6% 11.2% 12.9% 18.3% 21.8%
Pretax Income 12.8% 13.7% 16.6% 15.2% 18.0% 19.1% 20.1% 21.2% 22.2% 22.7% 23.1% 23.7% 14.1% 14.7% 19.7% 23.0%
Net Income 8.7% 9.3% 11.3% 10.6% 12.3% 13.1% 13.7% 14.4% 15.1% 15.4% 15.7% 16.1% 9.6% 10.1% 13.4% 15.6%
Tax Rate 32.0% 32.0% 32.0% 30.3% 31.5% 31.5% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% 31.5% 31.8% 32.0%
Percent Change
Sales -2.8% 7.4% 25.6% 33.0% 37.7% 40.1% 35.2% 34.0% 34.1% 33.0% 35.6% 36.7% 1.5% 15.3% 36.6% 34.9%
Cost of Goods Sold 3.7% 13.7% 26.8% 35.0% 41.9% 37.0% 34.7% 29.0% 31.4% 30.1% 32.0% 32.3% 15.9% 19.9% 35.1% 31.5%
Gross Profit -9.9% -0.2% 24.0% 30.3% 32.5% 44.4% 35.9% 40.9% 37.7% 36.8% 40.3% 42.3% -12.0% 9.8% 38.5% 39.4%
SG&A 6.9% -0.3% -0.1% 15.0% 15.6% 24.0% 20.4% 8.4% 13.2% 18.1% 24.5% 31.3% 15.2% 5.4% 16.7% 22.0%
R&D -6.6% -6.0% 0.7% -1.6% 2.3% 9.8% 11.5% 18.6% 17.6% 24.9% 31.6% 33.4% 16.5% -3.5% 10.5% 27.1%
Operating Income -32.8% 5.7% 125.5% 127.0% 98.4% 108.3% 71.1% 104.8% 76.5% 60.3% 57.6% 54.6% -48.9% 33.0% 94.1% 61.0%
Pretax Income -35.3% -4.2% 88.1% 93.6% 92.7% 95.6% 64.4% 86.8% 65.4% 58.0% 55.6% 52.6% -43.1% 19.7% 83.3% 57.3%
Taxes -40.7% -12.4% 100.8% 148.2% 89.6% 92.5% 64.3% 97.4% 68.0% 60.6% 55.6% 52.6% -49.8% 17.8% 84.9% 58.4%
Net Income -32.3% 0.3% 82.7% 76.8% 94.2% 97.1% 64.4% 82.2% 64.1% 56.9% 55.6% 52.6% -39.2% 20.5% 82.6% 56.8%
EPS -29.5% 2.4% 82.6% 72.3% 87.8% 92.7% 60.8% 81.3% 63.9% 55.5% 54.9% 51.9% -38.5% 21.6% 78.8% 56.0%
POWER ELECTRONICS VALUATION ANALYSIS Ann. FactSet Last Twelve Last Twelve
9/15/00 Shares Market Total Debt/ Calendar EPS 99-01 P/E Multiple Ent. Value/ Months Months
Ticker Price Out Cap. L-T Debt Capital 1999A 2000E 2001E CAGR 2000 2001 LTM EBITDA ROE ROA
Advanced Power Tech. (BUY) APTI $34.81 7.9 $275.0 $0.0 0.0% $0.16 $0.46 $0.70 109.2% 75.7 x 49.7 x NA NM NM
Analog Devices ADI 92.06 353.8 32,571.7 0.0 0.0% 0.73 1.78 2.52 85.8% 51.7 x 36.5 x 20.9 x 25.3% 18.0%
Artesyn Technologies* (BUY) ATSN 37.50 37.3 1,398.8 69.6 25.7% 1.16 1.36 1.75 22.8% 27.6 x 21.4 x 9.1 x 23.3% 12.3%
Burr Brown BBRC 89.67 56.0 5,021.6 251.5 42.7% 0.78 1.59 2.16 66.4% 56.4 x 41.5 x 22.7 x 20.8% 13.1%
C&D Technologies (BUY) CHP 52.50 26.0 1,365.0 84.6 34.1% 1.18 1.95 2.32 40.2% 26.9 x 22.6 x 7.9 x 25.7% 12.1%
Cree Inc. (BUY) CREE 115.94 37.6 4,359.3 0.0 0.0% 0.56 1.20 1.59 68.5% 96.6 x 72.9 x 78.3 x 10.1% 16.8%
Elantec Semiconductor Inc. ELNT 77.13 24.0 1,851.0 0.0 0.0% 0.33 0.95 1.33 100.8% 81.2 x 58.0 x 15.3 x 39.0% 24.6%
Exar Corp. EXAR 103.31 21.3 2,200.6 0.0 0.0% 0.39 1.16 1.55 99.4% 89.1 x 66.7 x 4.8 x 6.3% 6.0%
Fairchild Semiconductors FCS 33.44 102.0 3,410.6 720.2 63.5% 0.97 2.70 3.02 76.4% 12.4 x 11.1 x NA 30.0% 9.2%
General Semiconductors SEM 14.13 37.8 533.9 252.5 64.6% 0.66 1.14 1.41 46.2% 12.4 x 10.0 x 9.5 x 26.4% 6.3%
International Rectifier (BUY) IRF 59.50 61.4 3,653.3 4.6 0.7% 0.43 2.12 2.98 163.3% 28.1 x 20.0 x 11.5 x 11.0% 7.9%
Intersil Corp. ISIL 48.00 75.0 3,600.0 116.2 25.5% NA 0.64 1.00 NA 75.0 x 48.0 x 36.7 x NA NA
Linear Technology LLTC 63.94 311.1 19,891.0 NA NA 0.71 1.08 1.37 38.9% 59.2 x 46.7 x 31.0 x NA NA
Magnetek MAG 11.25 23.2 261.0 64.0 24.8% 0.15 0.44 NA NA 25.6 x NA 17.3 x 0.7% 0.3%
Maxim Integrated Products MXIM 76.31 282.7 21,573.5 0.0 0.0% 0.72 1.09 1.45 41.9% 70.0 x 52.6 x 27.5 x 28.1% 23.7%
Micrel Inc. MCRL 65.56 83.9 5,500.7 7.9 4.8% 0.42 0.78 1.07 59.6% 84.1 x 61.3 x 30.4 x 34.0% 25.7%
Microlinear Corp. MLIN 4.75 11.5 54.6 2.7 4.7% (0.04) 0.24 0.48 NA 19.8 x 9.9 x 12.2 x -8.6% -7.2%
Microsemi Corp. MSCC 38.75 13.1 507.6 9.9 8.0% 0.47 0.85 1.18 58.4% 45.6 x 32.8 x 6.2 x 3.7% 2.2%
National Semiconductor Corp. NSM 42.75 176.5 7,545.4 48.6 3.7% NA 2.54 3.12 NA 16.8 x 13.7 x 14.7 x 48.8% 28.0%
ON Semiconductor ONNN 14.88 165.9 2,467.8 1,228.8 89.6% NA 0.69 1.19 NA 21.6 x 12.5 x NA NA NA
Pericom Semiconductor PSEM 32.75 13.6 445.4 0.0 0.0% 0.79 1.48 1.99 58.7% 22.1 x 16.5 x 6.9 x 12.5% 11.2%
Power Integrations (BUY) POWI 14.31 27.2 389.3 0.0 0.0% 0.67 0.82 1.08 27.0% 17.5 x 13.3 x 37.4 x 30.9% 25.4%
Power-One* (BUY) PWER 84.63 38.5 3,258.1 11.0 5.5% 0.30 0.80 1.26 104.9% 105.8 x 67.2 x 24.9 x 17.9% 10.4%
Semtech Corp. (BUY) SMTC 100.63 32.6 3,280.4 400.0 74.3% 0.85 1.55 2.26 63.1% 64.9 x 44.5 x 38.1 x 32.0% 12.2%
Siliconix SILI 50.25 29.9 1,502.5 1.9 0.8% 2.21 NA NA NA NA NA 10.4 x 43.5% 24.1%
Sipex Corp. SIPX 49.67 23.3 1,157.4 0.0 0.0% 0.42 0.60 1.08 60.4% 82.8 x 46.0 x 61.4 x 5.8% 5.2%
ST Microelectronics STM 54.63 934.5 51,047.1 1,051.6 28.4% 0.62 1.46 2.12 84.9% 37.4 x 25.8 x 26.8 x NA NA
TelCom Semiconductor (BUY) TLCM 14.63 20.4 298.4 0.0 0.0% 0.45 0.83 1.08 54.9% 17.6 x 13.5 x 23.0 x 19.4% 16.6%
Vicor Corp. (BUY) VICR 42.25 42.4 1,791.4 0.0 0.0% 0.45 0.81 1.26 67.3% 52.2 x 33.5 x 37.2 x 11.4% 10.2%
Source: FactSet Research Systems, Stephens Inc. for those companies with BUY ratings, and First Call for all others
2000E
Gross Margin 37.4% 38.7% 52.0% 50.9% 54.1% 55.8%
EBITDA Margin 15.9% 25.4% 27.9% 24.5% 43.3% 30.1%
Operating Margin 13.1% 18.9% 24.2% 20.6% 36.8% 29.0%
Net Margin 8.1% 14.8% 18.7% 21.3% 31.6% 22.6%
Balance LTM
Cash $36.0 $254.3 $43.1 $111.2 $262.1 $423.0
Debt $0.0 $4.6 $0.0 $0.0 $0.0 $400.0
Equity $41.0 $843.1 $96.0 $128.1 $463.1 $186.0
Total Assets $50.0 $1,026.0 $113.0 $143.2 $486.2 $616.1
Goodwill $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Debt/Capital 0.0% 0.5% 0.0% 0.0% 0.0% 68.3%
* Sales, EBITDA, EPS and multiples represent calendar year totals; June year-end for IRF and CREE, January year-end for SMTC
2000E
Gross Margin 26.8% 29.4% 40.9% 43.3%
EBITDA Margin 13.6% 20.3% 21.9% 24.8%
Operating Margin 10.3% 16.0% 17.4% 18.4%
Net Margin 6.6% 9.1% 11.0% 13.5%
Balance LTM
Cash $36.6 $5.9 $12.8 $71.3
Debt $69.6 $84.6 $11.0 $0.0
Equity $222.3 $186.6 $277.3 $253.3
Total Assets $425.7 $370.0 $457.9 $282.4
Goodwill $61.5 $72.2 $158.8 $0.0
Debt/Capital 23.8% 31.2% 3.8% 0.0%
Book Value $5.96 $7.18 $3.60 $5.97
Tangible Book Value $4.31 $4.40 $1.54 $5.97
Alternating Current (AC) - A periodic electrical current the average value of which over a period is zero.
Unless specified otherwise, the term refers to a current that reverses at regularly recurring intervals of time and
has alternately positive and negative values.
Amps - Short for amperes. The electron or current flow representing the flow of one coulomb per second past a
given point in a circuit.
Bus - The common primary conductor of power from a power source to two or more separate circuits.
Captive Manufacturer - Manufacturers that make products for their own use and do not market them for outside
sale.
Cathode - The electrode in an electrochemical cell where reduction takes place. During discharge, the positive
electrode of the cell is the cathode. During charge, the situation reverses, and the negative electrode of the cell is
the cathode.
Coulomb - The meter-kilogram-second unit of electric charge equal to the quantity of electricity transferred by a
current of one ampere in one second
Custom Products - Products made according to the specifications on the customers orders.
Diode - A two-element device containing a cathode and an anode that permits flow in one direction and blocks
flow from the other direction.
Direct Current (DC) - The type of electrical power produced by batteries and power supplies. Electrons flow in
one direction.
Efficiency - The ratio of total output power to total input power, expressed as a percentage, under specified
conditions.
Electromagnetic Interference (EMI) - Any magnetism produced by an electric charge in motion that interrupts,
obstructs, or otherwise impairs the performance of electronic equipment.
Frequency - Number of cycles per second measured in Hertz. The U.S. standard is 60 Hz per second.
Induction The process by which an electromotive force is produced in a circuit by varying the magnetic field
linked with the circuit.
Input Voltage Range - The specified range input voltage within which a power supply or device operates.
Joule - Unit of work or energy in the International System (SI) of Units; it is equal to the work done by a force of
one newton acting through one meter.
Load Regulation - 1) Static: The change in output voltage as the load is changed from the specified minimum to
maximum and maximum to minimum, with all other factors held constant. 2) Dynamic: The change in output
voltage expressed as a percent for a given step change in load current.
Merchant Manufacturer - An independent manufacturer that sells its products to various vendors, including
small custom contractors.
Modified-Standard Products - A standard product modified to make it suitable for certain applications.
Newton - The unit of force in the meter-kilogram-second system equal to the force required to impart an
acceleration of one meter per second per second to a mass of one kilogram.
Noise - The random component on the power source output, which is unrelated to source and switching
frequency. Noise is typically expressed in peak-to-peak units over a specified bandwidth.
Power Supply A circuit designed to furnish operating voltages and currents for electronic devices.
Radio Frequency Interference (RFI) - An undesired radiated or conducted signal in the radio frequency
spectrum.
Standard Products - Products that are made before receiving any orders. Standard does not imply an industry
standard, as one does not exist.
Switching Power Supplies - Include both AC/DC switchers and DC/DC converters.
Transformer - A device that transfers energy from one circuit to another by electromagnetic induction.
Uninterruptible Power Supply (UPS) - A circuit that inhibits the power supply when output voltage falls below
a specified minimum.
Value-Added-Resellers (VARs) - Companies that buy products from manufacturers and then add value to those
products before reselling them to end-users.
Voltage - A derivative electrical quantity, measured in the unit volts and defined in terms of the independently
obtained amp, and unit of resistance.
Watt - A unit of measurement of power equal to 1 joule/sec. Watts equal volts times amps.
Stephens 125
Appendix E
North American Power Semiconductor Manufacturers
Company Web site Transistor Rectifier Thyristors ICs
ABB Semiconductors www.abbsem.com * * *
Acumentrics Corp www.acumentrics.com *
Acutech, Inc. NA *
Advanced Actuators NA *
Advanced Power Technology www.advancedpower.com *
Allegro Microsystems www.allegromicro.com * * * *
AMC Technologies www.amc.com *
Analog Devices www.analog.com *
Apex Microtechnology www.apexmicrotech.com *
API Electronics www.api-electronics.com/cont.htm * * *
BEI Sensors and Systems www.beisensors.com *
Caleb Systems www.caleb-corp.com * * *
Cherry Semiconductor NA *
Cougar Electronics www.cougarelectronics.com *
Composite Modules www.cmodules.com * *
Consolidated Electronics www.con-elec.com * *
Crydom www.crydom.com * * *
Data Device Corp. www.ddc-web.com *
Diodes www.diodes.com * *
Directed Energy www.directedenergy.com *
Dynex Semiconductor www.dynexsemi.com * * * *
Eupec, Inc. www.eupec.de * * *
Fairchild Semiconductors www.fairchildsemi.com * * *
Fujitsu Microelectronics www.fcsi.fujitsu.com *
Galil Motion Control www.galilmc.com *
General Semiconductor www.gensemi.com * *
HDL Research Lab NA *
Hitachi America www.hitachi.com/semiconductor * * *
IMP www.impweb.com *
Infineon Technologies www.infineon.com * * *
Intelligent Motion Systems www.imshome.com *
International Rectifier www.irf.com * * * *
Intersil www.intersil.com * * *
Linear Technology www.linear-tech.com *
LSI Computer Systems www.lsicsi.com *
Maxim Integrated Products www.maxim-ic.com *
Methode Electronics www.methode.com *
Microsemi www.microsemi.com * * * *
Minarik Automation and Contro www.minarikcorp.com *
Motorola www.mot.com *
National Hybrid www.nationalhybrid.com *
National Semiconductor www.national.com *
NEC Electronics www.necel.com *
Links to Company web sites are provided for convenience only. Stephens Inc. is not responsible for any information of such web sites.
Please view Stephens Inc. web site Important Legal Information.
Stephens 127
Appendix F
North American Power Supply Manufacturers
Links to Company web sites are provided for convenience only. Stephens Inc. is not responsible for any information of such web sites.
Please view Stephens Inc. web site Important Legal Information.
9/15/00
Company Ticker Stock Price
ABB Semiconductors ABLZF $117.50
Acme Electric Corp. ACEE $8.50
Advance Power (division of American Power Conv.) APCC $21.69
Advanced Micro Devices AMD $27.75
Advanced Power Technology (BUY) APTI $34.81
ALCATEL ALA $77.13
Alleghany Teledyne ALT $2.94
AMC Technologies APMC $12.38
Analog Devices ADI $92.06
Artesyn Technologies (BUY) ATSN $37.50
Astec (Emerson Electronics) EMR $65.00
AULT, Inc. AULT $8.63
BEI Sensors and Systems BEIQ $42.25
Bell Laboratories (division of Lucent Technologies) LU $37.69
Boeing Co. BA $56.88
Burr Brown (purchased by Texas Instruments) BBRC $89.67
C&D Technologies (BUY) CHP $52.50
Celestica Power Systems CLS $77.56
Cherry Semiconductor ONNN $14.88
Cisco Systems CSCO $62.75
Condor (division of SL Industries) SL $12.00
Cree Inc. (BUY) CREE $115.94
Delta Electronics DLEGF $7.63
Deltron Electronics DETNF $2.30
Digital Power Corp. DPW $7.63
Diodes Inc. DIOD $16.63
Elantec Semiconductor ELNT $77.13
Eldec Power Systems (division of Power-One) PWER $84.63
Emerson Electric EMR $65.00
Ericcson LM Telephone ERICY $18.00
Ericsson Microelectronics (Emerson Electronics) EMR $65.00
Eupec, Inc. (division of Infineon Technologies) IFX $51.56
Exar Corp. EXAR $103.31
Exteme Networks EXTR $90.00
Fairchild Semiconductors FCS $33.44
General Semiconductor SEM $14.13
HC Power Systems (division of Power-One) PWER $84.63
Hewlett-Packard HWP $103.00
Hitachi America HIT $120.25
IMP Inc. IMPX $1.88
Infineon Technologies IFX $51.56
Intel Corp. INTC $57.52
International Power Devices (division of Power-One) PWER $84.63
International Rectifier (BUY) IRF $59.50
Interpoint (division of Crane Co.) CR $21.31
Intersil Corp. ISIL $48.00
Invensys Plc/Lambda IVNSY $4.25
Juniper Networks JNPR $201.69
Linear Technology LLTC $62.94
Lite-On (division of Arrow Electronics) ARW $35.00
Lucent Technologies LU $37.69
MagneTek MAG $11.25
Matsushita Electric MC $252.50
Maxim Integrated Products MXIM $76.31
MCI Worldcom WCOM $29.44
Melcher Inc. (division of Power-One) PWER $84.63
Methode Electronics METHA $52.63
Micrel Inc. (BUY) MCRL $65.56
Microlinear Corp. MLIN $4.75
Microsemi Corp. MSCC $38.75
Acon, Inc.
Acopian Corp.
Acumentrics Corp
Acutech, Inc.
Advance Power Solutions
Advanced Actuators
Aerospace Avionics
Apex Microtechnology
API Electronics
Arnold Magnetics
Astrodyne Corp.
Autec Power Systems
Autronics Corp.
Broadband TelCom Power
Caleb Systems
Calex
Cherokee International
Composite Modules
Consolidated Electronics
Converter Concepts Inc.
Cougar Electronics
Crydom
Data Device Corp.
Di/Dt
East Penn Manufacturing
Elpac Power Systems
EOS Corp. (Charterhouse)
Fortron/Source
Frost & Sullivan
Galaxy Power
Galil Motion Control
HDL Research Lab
Intelligent Motion Systems
Intronics
Jasper Electronics
Kepco
LSI Computer Systems
Minarik Automation and Control
National Hybrid
OECO LLC
PEMA
Performance Motion Devices
Pico Electronics
Pioneer Magnetics
Power Ten
R.O Associates
Rabun Labs
Resonant Power Technology
RO Associates
SAE Power, Inc.
Sensitron Semiconductor
Silicon Power
Sola/Hevi-Duty
Solid State Devices
SPCO
Stormin Protection Products
Switching Power
SynQor
Trace Technologies
Transistor Devices Inc.
Tri Mag
Tri Source
Unipower
VARO LLC
Westcode Semiconductors
Xantrex
ZAE Research