InformationWeek

December 22, 1997

Taking St ock: SymmetriCom's Good Timing

After the drop in tech stocks, this maker of integrated circuits has a low price--but good prospects--in a volatile field

By William Schaff

fter last week's pounding of technology stocks, I started looking through the ruins to find some gems. In San Jose, Calif., I found a small company called SymmetriCom Inc., a manufacturer of linear and mixed-signal integrated circuits and a leader in specialized transmission, network synchronization, and intelligent access systems.

Some older tech-heads and IS managers may remember that, before 1994, the company was known as Silicon General. It developed the first pulsewide modular integrated circuit.

Most telecommunications companies are being forced to deal with the ever-increasing appetite for bandwidth imposed on our telecom infrastructure as we migrate from analog to digital technologies. Upgrading of infrastructure directly correlates with increasing demand for synchronization and timing devices.

Timing devices allow error-free transmission of data, increasing network performance and capacity. Minimizing signal degradation is especially critical in high-capacity and high-speed digital transmission technologies such as Sonet (Synchronous Optical Network) and SDH (Synchronous Digital Hierarchy) networks.

Most IS managers would agree that this market is growing. SymmetriCom's primary product through its telecom solutions division is the digital clock distributor, either quartz or rubidium. The company estimates that there are more than 17,000 digital clock distributor systems globally, of which SymmetriCom has supplied the lion's share.

The main downside is the growing competition, especially from makers of non-rubidium timing devices, such as di gital clock distributors made with cesium. Companies such as Datum Inc. and Hewlett-Packard are making their presence felt in both supply and pricing.

SymmetriCom's other major division is Linfinity Microelectronics, which designs and manufactures linear and mixed-signal integrated circuits as well as power-management modules for data communications. SymmetriCom is trying to migrate from its low-volume defense and space markets to higher-volume commercial products such as desktop power-management systems. Though this is potentially a commoditylike business, an underutilized fabrication plant in Garden Grove, Calif., could help the company achieve substantial manufacturing efficiencies if it can increase sales.

So why did the stock drop from $18 to $12 over the past three months? As most investors have already figured out, there is no free lunch here. The current Asian financial crisis will more than likely hurt telecom infrastructure sales, both wired and wireless.

Also, it doesn't help that AT&T ac counts for almost one-quarter of SymmetriCom's total sales. Any slowdown in purchases by AT&T will have an immediate impact. Look at the decline of 71% on Datum's share price since Sept. 30 after Lucent Technologies slowed down its purchases. If that wasn't enough, this is a small-cap stock in a volatile technology sector.

OK, let's discuss the good news. The company is sitting on a mound of cash, roughly $35.6 million as of the end of last quarter, or more than $2 per share, with only $10 million in long-term debt outstanding. The CEO, Dan Rasdal, owns more than 3% of the outstanding stock.

Also, the company recently hired brokerage and investment banking firm Alex. Brown & Sons to come up with strategic alternatives to unlock value within the company. Though this has become a catch-all phrase, a meaningful merger or sale of assets could come to pass, maybe even by the end of January. Ongoing operating margins should remain stable at around 16%, resulting in a 12-month valuation of about $15 bas ed on a fiscal 1998 (ending June 30) earnings-per-share estimate of 95 cents. Investors are getting real value at less than $11.50 per share.

William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 Stock Index. You can reach him at bschaff@bayisle.com .

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