Integrated Device Technology Inc.

IDTI is a semiconductor designer with a broad range of solutions including radio frequency, real-time interconnect, wireless power transfer (the market leader in wireless charging), serial switching, interfaces, automotive ASICs, battery management ICs, sensor signal conditioner ICs and environmental sensors; the company’s core end markets are communications, computing, consumer, automotive and industrial. The company has been delivering solid growth and feels that strong growth is due to continue. Management sums it up well in their 2018 letter to shareholders. They have a strong culture when it comes to expectations for new product innovation. They are gaining market share in all of their target markets driven by strong growth in nearly every major product line and they believe their leadership capabilities will be in higher demand in the future. This is mainly why I feel the company will eventually be a takeover candidate. The company has convertible shares are due in 2022 and the conversion price is $33.45 with a conversion ratio of 29.892 shares per $1000 principal (potentially 10.9m shares or 8.4% of shares outstanding). When the share price average is above the conversion price, the dilutive effects of the convertible notes will reflect in diluted shares outstanding. However the company has a hedge in place designed to neutralize the effects of actual conversion although they will not reflect in diluted shares outstanding.

Ests: 1Q19 2Q19 FY19 FY20

Revs 227 230.4 924.3 993 +7%

EPS .43 .44 1.78 2.00 +12%

P=33.29, D/C=19%, net cash ex converts =153m, TTM EPS=1.66, P/E=19X, FY19 P/E=17X

1Q19 .44 vs .33, est .43

July 30, 2018 P=33.29, TTM EPS=1.66, P/E=19X, FY19 P/E=17X
Revs +16% to 228.5m, GM 63.4% vs 61.4%, OM 29.6% vs 23.3%, OpInc +36%
Cloud computing/data center +22% to 40% of revs, communications +4% q/q and +19% y/y despite loss of ZTE revs to 29% of revs, Consumer +5% q/q and +13% y/y to 20% of revs, Automotive and industrial -11% q/q and -2% y/y to 11% of revs due to product transitions, expect return to growth in 2Q
Growth driven by data center, communications, and consumer.
Momentum with new product ramps and new customer wins continues to accelerate.
Have multiple tier1-1 customer wins for 5G, initial pilot shipments have commenced, expect volume production mid next year.
New products in advanced timing, memory interface, sensors, RF, automotive and industrial, and wireless power are accelerating and outperforming expectations. For wireless power they are winning higher margin and stickier business outside of smartphones.
Mgmt confident FY19 rev growth will be at or above the high end of their 8-10% target, shipments to ZTE have resumed, should be minimal in 2Q but more beneficial in 2H
Guidance: 2Q Revs 228-238m (+11.5-16.4%, est 230.4), y/y growth in all end markets. GM ~63.8%, now see 2H GMs at the high end or above their previous 63-64% target, OM ~29.7%, EPS .42-.48 (+20-37%, est .44)
Results and guidance are solid, valuation looks attractive given their growth, commentary leads me to believe growth in FY20 would accelerate barring significant economic disruption or 5G deployment delays.

4Q18 .46 vs .35, est .44, FY EPS 1.55 vs 1.40, FY18 tax rate 4.4%

Revs +28% to 224.6m, GM 62.6% vs 60.4%, OM 30% vs 27.2%, GP +32%, OpInc +40.8%, EBT +35% and NI +31.6% due to negligible tax rate last year
Communications +4% q/q to 29% of revs, Cloud Computing -7% q/q but +38% y/y to 39% of revs, Consumer +25% q/q to 19%, Automotive and Industrial +15% q/q to 13%
Newer products at higher margins than the ones they replace, design funnel has increased substantially, have a direct line of sight to capture additional major customer engagements and increasing R&D as a result, should see growth acceleration in late FY19 into FY20
Discussed a new high-value sensor with wireless power for a med-tech company for continuous glucose monitoring, currently in trials.
Expect continued growth and margin improvement in FY19, gaining share across most product lines. Feel they will hit $1bn revenue run rate earlier than previously expected (FY18 Revs 842.8m)
Guidance: 1Q19 Revs ~227m +/- 5m, incl 4m negative hit from ZTE, +15.4%, est 225m, GM 62.5%, EPS .40-.46 (est .43), and then GM 63-64% in 2H, see FY19 Revs congruent with their target model of 8-10% annual rev growth despite 20m hole from ZTE

3Q18 .42 vs .35, est .41

Revs +23% to 217.1m, GM 62.9%vs 61.6%, OM 28.9% vs 28.0%, GP +25.7%, OpInc +27.0%, EBT +22.5% but net income +17% due to negligible tax rate last year
Cloud Computing/Data Center +18% q/q, +59% y/y to 44% of total, communications flat q/q, -3.5% y/y to 29% of total (saw softness in optical telecom and wireless infrastructure especially in Asia but they feel new product ramps continue to gain share and remain a growth driver). Consumer -6% q/q, +3.7% y/y to 16% of total (normal seasonality, seeing significant design wins with wireless charging). Automotive and Industrial +4% q/q, +35% y/y to 11% of total
Strength driven by high-performance compute and automotive/industrial, product cycles in consumer to kick in during 4Q driving total growth above normal seasonality
Design-n funnel has increased substantially a year ago, see exciting growth opportunity with LiDAR
See exceeding 830m revenue target discussed at last year’s Analyst Day.
4Q Guidance: Revs 222m +/- 5m (est 222.4), expect OpEx to decline in 4Q as 3Q were higher than normal due to patent filings and new product marketing to support growth, EPS .41-.47 (est .44).

2Q18 .35 vs .34, est .34

Revs +11% to 204.4m, GM 61.4% vs 60.5%, GP +12.7%, OpEx +14%, OpInc +10.9%, higher interest expense weighed on bottom line.
Auto and Industrial +>30%, seeing significantly increasing major program awards across major verticals of automotive, industrial, communications infrastructure, cloud data centres, and consumer. Expect to hit record levels for advanced memory interface products in 3Q18 and expect continued acceleration next year. New optical products are exceeding their targets.
Feel they are entering a period of sustainable high growth as their customer base is much more diverse than in the past, new products launches next year. Mgmt talked about millimeter wave which they think will be transformational for IDT, allows you to beam steer high-bandwidth wireless communication to moving users, they feel they are in a leadership position, starts to generate revenue next year. Their high-performance memory interfaces are well-positioned to benefit from increased high-performance DRAM in AI deep learning systems. Very optimistic on wireless power for next year. Working on a LiDAR solution to significantly reduce cost, will be in trials by next year but not a major revenue driver next year (autonomous driving would be a target market).
3Q Guidance: Revs 215 +/- 5m (+21.8%, +14% organic, est 211.6), GM ~62.4%, OM!28.8%, EPS .38-.44 (vs .35, est .40)

1Q18 .33 vs .36, est .32

Revs +2.4% to 196.7m (est 195), GM 61.4% vs 61.3%, OM 25.2% vs 27%
Sequential growth due to broad organic growth, positioned for revenue growth and expansion in profit margins and cash flows in the 2H as the lap the Huawei loss last year.
Seeing “significantly increasing major customer program awards across all of our major vertical markets of automotive and industrial, communications infrastructure, consumer, and cloud data centres”.
Guidance: 2Q Revs 201m +/- 5m (est 200)

4Q17 .35 vs .36, est .34

Revs -7.2% to 175.7m (slightly above midpoint of guidance) due to loss of Huawei business last year, strength in wireless power, memory interface, and automotive. GM 60.4% vs 61.8%, OM 27.2% vs 27.4%, OpInc -7.9%
Continues to see robust demand, mgmt. feels they are well positioned to leverage multiple avenues of growth with their unique analog and mix-signal expertise, believe 2H18 is the beginning of a major product upgrade cycle.
Guidance: 1Q18 Revs ~195m incl 15m from GigPeak acquisition (est 185m), OM 25.1%, expect to get to 30% in 2H, EPS .30-.34 (est .34) vs .36