IPO hunters to trail the silicon path

Daniel Sorid

SAN FRANCISCO: With semiconductor stocks, and profits, up sharply after a two-year downturn, chip industry investment bankers see a window of opportunity for a healthy batch of initial public offerings this year and next.

But that window could slam shut after the recent poor showing by China's largest chip maker in its first two days of trading, the cancellation of a German chip IPO and a pull-back in semiconductor shares.

Certain chip business segments including power management and communications appear likely to produce IPOs, but the industry's notorious volatility could hurt market sentiment.

"When news is this good, it often doesn't stay this good," said Mark FitzGerald, a Bank of America Securities analyst, who covers semiconductor production equipment maker and made-to-order chip manufacturers.

Bankers are pointing to Atheros Communications Inc., which had a strong debut in February and has seen its its stock price rise around 20 percent since then, even though it faces fierce competition from large chip makers including Intel Corp. and Broadcom Corp.

"The market basically looked through all that, focused on the prospects of a young company succeeding against the giant, and I think that's an encouraging sign," said one banker, who expects about 10 chip-related IPOs this year.

Two Silicon Valley-area chip designers, Monolithic Power Systems and Volterra Semiconductor Corp., could start the IPO process soon, two bankers said.

Those makers of power management chips would follow IPO filings earlier this year by analog chip maker Jazz Semiconductor Inc., gas delivery equipment supplier Ultra Clean Holdings, and chip testing equipment maker Cascade Microtech.

Recent market dips could signal caution. In Germany, X-FAB Semiconductor Foundries AG on Wednesday canceled IPO plans due to investor caution. China's Semiconductor Manufacturing International Corp. has dropped nearly 15 percent in its first two days of trading, despite the allure of the growing Chinese chip industry.

Still, March and April could be busy for semiconductor IPO filings, as aspiring companies show off a full fiscal year of profits and a strong first quarter, one banker said.

"I think companies that want to offer off the March numbers, would be filing in probably the next couple weeks, next two to four weeks," the banker said in a recent interview. "My guess is you'll have quite a few more this year than last year."

ANALOG OPPORTUNITIES

Analog chip makers are among the most endeared by chip investors, with generally higher profit margins and relatively more stable businesses than computer memory and semiconductor manufacturing equipment producers.

Chips that can process analog signals like sound, temperature and light are increasingly needed in mobile phones, laptop computers, and consumer electronics. Analysts have noted that when a company gets its analog chip into a product line, it often stays there for good.

One analog chip maker, Los Gatos, California-based Monolithic Power Systems, has attracted attention as an IPO candidate. Monolithic Power's chips control the power used by displays on notebook computers and cell phones. The products tap into growing demand from electronics users for better battery life.

"These companies, and MPS is one of them, are addressing and supporting the tremendous unit volume growth of portable electronics," said Jim Jones, a director of BA Venture Partners, an investor in Monolithic Power.

Jones, who also sits on the board of directors of MPS, declined to comment on MPS's specific IPO plans, but did say "we probably will have some news in the near future."

Bankers said Volterra, which designs voltage regulators used in networking and communications equipment, is seen as a likely IPO candidate. A representative of Volterra, based in Fremont, California, did not return a phone call.

© Reuters