IMOS

[admin]

Actually, the same article also mentions IMOS, which I thought was oversold and due for a correction. As it happens, I might have been onto something as it's up nearly 9% from when I wrote the article. Good cash flow generator.

[admin]

ChipMOS Technologies Gouges Itself a Deep Hole

By Rich Duprey | More Articles | Save For Later January 17, 2013 | Comments (2)

Typically when companies forecast lower sales or profits, their stocks usually take a hit. It's not always easy to tell whether it's having a fire sale or burning down its house. Maybe it is time to get out -- or maybe it's time to buy more!

For chip design testing house ChipMOS Technologies (NASDAQ: IMOS   , its recent fourth quarter revenue forecasts are indicative of the overall weakness in the PC market. It said revenue would fall to $167.5 million, down 5.3% from the third quarter, which was a steeper decline than the 5% drop it previously forecast (though it was up 5.6% from the year-ago period). With Himax Technologies and Micron Technology among its top customers, but with the latter being its second-largest customer and also reporting soft sales, it's no surprise ChipMOS would do so as well.

Now don't blindly follow those selling (or buying) on this apparent bearish signal: you still need to do some research. We'll just use the announcement as a jumping off point.

Like lemmings over the cliff
While DRAM testing has been ChipMOS's forte -- generating 30% of its revenue in 2011 -- the LCD market for smartphones, tablet computers, and other flat-panel displays has also grown in importance, accounting for about 22% of its total revenue. Strong tectonic shifts on both fronts look ready to drive the test shop higher.

DRAM and its various iterations are the most common type of memory used in computers today, but it is a cyclical business and the slowdown in PC shipments, coupled with intense competition and uncertainty created by macroeconomic conditions, has the DRAM market facing an inventory glut. With pricing pressured as a result, ChipMOS is constrained in what it can charge for testing. Even as global DRAM shipments continue to rise, the growth rate is slowing, yet Advantest says 2013 represents a year when both DRAM and ChipMOS' other business -- LCD driver ICs and controller chips -- will pull the industry up to new highs.

No longer the boob tube
The smart TV is the next logical advance in the connected living room as PCs, tablets, smartphones, and the television set meld to form a seamless and integrated entertainment hub. According to one analyst at least, the smart TV will account for 37% of all TV sales this year. Although there's no clear standard yet, which makes the transition volatile, the drive toward connectedness will place heavy demand on memory needs. Particularly in the server market, could-based memory will be challenged by the demands placed on it and analysts anticipate that if there's going to be memory growth anywhere, it will be there.

On the go
Mobile computing will continue to expand with Apple dominating the tablet market and Google's Android platform ruling smartphones. Because ChipMOS focuses on liquid-crystal displays, it should see demand rise as vendors work down their inventory surpluses. It's interesting to note that analysts remain worried about Apple's presence in smartphones, and Nomura says weaker-than-expected iPhone 5 sales led it to cut unit estimates by 5% in 2013 and by 8% for 2014.

Still, the rapid increase in mobile devices will help power DRAM shipments in the future, with iSuppli forecasting the combined share of mobile handsets and tablets in the DRAM market to reach almost 27% by the end of this year, almost double the 14% share it marked in the first quarter of 2012.

At less than seven times earnings estimates, ChipMOS certainly looks cheap at these levels, and when a cyclical industry like the chip market is in a funk, it's often the time to strike. Valuations are skewed because of the imbalance, so I think with the forces working in its favor, ChipMOS Technologies looks ready to take off.

[admin]

ChipMOS Insiders Sell Despite 40% Free Cash Flow Yield - Lots More To The Story

Valuable Insights | October 31, 2012  | 18 comments  |  about: IMOS, includes: SPIL

Disclosure: I am long IMOS. (More...)

Thank you, ChipMOS (IMOS) insiders. Siliconware (SPIL) and Thailin, we appreciate you taking one for the team ,- we never thought we'd have the opportunity to buy ChipMOS this cheap again. Typically when insiders sell, especially a seemingly cheap stock -- in this case one with a 40% free cash flow yield -- it raises eyebrows, if not concern. However on Friday, when insiders sold 2.5 million shares of ChipMOS at $10.10 -- a 15% discount to Thursday's close -- we were buyers, and significantly increased our position. What the prospectus failed to mention was that Siliconware and Thailin were selling a portion of their holdings because regulators required it for ChipMOS to list shares in Taiwan -- a move that we believe, and we think Siliconware and Thailin agree, will create tremendous shareholder value and help ChipMOS hit $30 over the next 12 months.

We have written several positive articles regarding ChipMOS. This is a high quality company with a long operating history, excellent customers, and a clean balance sheet. We expect the company to generate approximately $4 per share of free cash flow this year (~40% FCF yield), similar to last year's $4 per share FCF, and next year's $4 FCF. According to recent comments from management, the company will be net debt free by year-end versus almost $500 million of net debt in early 2009. Prior to 2012, the company's EPS has been muted and negligible due to above-trend depreciation from legacy cap-ex, but with depreciation decreasing to $160 million in 2012 from $195 million in 2011, EPS will exceed $1 this year. Depreciation falls to $125 million in 2013 and $105 million 2014, so EPS will grow dramatically if all else stays equal.

But all else should not stay equal -- it should improve. ChipMOS assembles and tests LCD driver-ICs, flash memory and commodity/mobile DRAM, and is highly levered to the smartphone and tablet markets. So if you believe, as we do, that the growth of smartphones/tablets is a sustainable megatrend, but don't want to pick a winner between Apple (AAPL), Amazon (AMZN), Google (GOOG), Microsoft (MSFT) or others, ChipMOS is a great, cheap way to get exposure, especially since it faces few competitors in the assembly and test space.

Insiders Sold To Create Massive Shareholder Value

Given ChipMOS' tremendous free cash flow yield and excellent prospects, insider sales would appear surprising at best and worrisome at worst -- and could explain why shares only traded up a meager $0.12 post-deal. The optics of this deal are terrible. In a market that sells first and asks questions later, a small cap, under-followed company with supposedly terrific free cash flow should not be selling shares near multi-month lows unless something is wrong. However, sometimes there's more to the story than meets the eye.

In this case, ChipMOS needed Siliconware and Thailin to sell a portion of their ChipMOS holdings to be allowed to list its shares on the Taiwan Stock exchange -- a move that should dramatically increase the value of its shares. Of course, this is not mentioned in the prospectus, however, the strategy of pursuing a Taiwan listing has been well-articulated by management since last spring. [Read on here]

[admin]

Haven't been talking about these, but things are going pretty well here..

Chipmos: Shares Have Over 100% Upside And Near-Term Catalysts

Mar 25 2013, 04:45  | 4 comments  |  about: IMOS, includes: MU

Disclosure: I am long IMOS, MU. (More...)

When we come across a stock with a 25%+ free cash yield, we take a look. When we find that it is well positioned for growth, has announced an upcoming buyback, has stated business is improving off a seasonal bottom, and is simplifying its corporate structure (making a future buyout more likely), we feel like the cat that has swallowed the canary. We have written previously about ChipMOS (IMOS) but in light of its recent 4Q earnings report, and the positive outlook from Micron (MU), its 2nd-biggest customer, we thought it timely to revisit the story as this is likely the last opportunity that investors will have to buy shares at over a 50% discount to fair value.

In 2012, shares of ChipMOS more than doubled from $5.16 to $11.60. While the annual stock-price performance was exceptional, it was a bit of a wild ride as shares rocketed as high as $19 last March, before falling back as low as $8.25 before ending the year at $11.

We first got excited about ChipMOS in 2011 because it is a free cash flow machine. Since year-end 2009, the company has reduced net debt from $490 million to ZERO ($140 million came from one-time events), including $99 million of free cash flow in 2012, representing a trailing free cash flow yield in excess of 30%. We expect free cash flow in 2013 to exceed $85 million, with the y/y decline due to higher taxes, still representing a 25% FCF yield. [Read on here]

[admin]

One of our big winners already, but according to Valuable insights  it ain't done yet..

ChipMOS: Stock Remains Dirt Cheap, 50%+ Upside By Year End

Jun 17 2013, 07:30  | 1 comment  |  about: IMOS, includes: HIMX, MU

Editor's notes: Up 54% since tech expert Valuable Insights wrote about it in March, IMOS is still undervalued and has catalysts yet to be priced in.

Disclosure: I am long IMOS, MU. (More...)

It's extremely unusual for a stock that's up 60% year-to-date to be the cheapest holding in your portfolio, but that's exactly the case for us with ChipMOS (IMOS). Typically, only troubled companies with secular headwinds trade at 2.3x EV/EBITDA and provide a free cash flow yield just under 20%. But ChipMOS actually has some of the strongest fundamentals in the entire technology sector. With Micron (MU), ChipMOS's second-largest customer, set to report on Wednesday, we thought it worth revisiting the story, and outlining several near-term catalysts that we expect to drive over 50% upside by year-end. [Read on here]

[admin]

Transformation: Q&A with ChipMOS chairman and CEO SJ Cheng

Mavis Hong, Taipei; Jessie Shen, DIGITIMES [Wednesday 20 November 2013]

ChipMOS Technologies is among very few firms that have transformed themselves successfully and are no longer influenced by the volatile memory market. Once known as a packaging and testing firm specializing in memory chips, ChipMOS has diversified its offerings to include backend services for LCD driver ICs, mixed-signal chips and niche-market logic semiconductors.

Back in 2009 when demand for PCs and other consumer devices was hit hard by the global financial crisis, the memory industry bore the brunt of the downturn. Two of ChipMOS' major clients, Spansion and ProMOS Technologies, fell into financial difficulty and were unable to repay the amounts owed to their suppliers for products or services purchased from them. ChipMOS was among the affected companies, and its combined uncollected accounts from the two customers reached about NT$2.5 billion.

Meanwhile, ChipMOS' own operation also suffered a substantial decline in customer orders during 2009, with monthly sales falling significantly. Monthly revenues at ChipMOS during 2009 were about 40% of the ordinary levels reached previously.

During its toughest time, ChipMOS had total liabilities of as high as NT$22.51 billion. The price of ChipMOS' stock listed on the NASDAQ fell to as low as US$0.18 from the previous US$5-6.

However, ChipMOS started to improve its operations in the second half of 2009 by cutting costs and adjusting its product mix, company chairman and CEO SJ Cheng noted in a recent interview with Digitimes. ChipMOS had also been seeking the best solution for its uncollected accounts receivable, and eventually managed to collect about NT$3.2 billion by selling the debts, Cheng said.

ChipMOS' consolidated revenues soared more than 40% with profits jumping almost 300% in 2010. And as of the end of 2012, the company achieved positive free and operating cash flow. It has since maintained an adequate level of cash.

The following is the interview during which Cheng discussed the company's diversification and business opportunities in the mobile device sector, and his outlook for the company.

Q: Earlier in 2013, ChipMOS started trading on the Emerging Stock Board (ESB) of the Taiwan Stock Exchange (TSE). The company also plans to submit an application by the end of the year to list its stock on the main board of the TSE. Can you tell us why you made the decision?

A: ChipMOS had been looking for the best time to debut on the TSE. We decided to do it this year in response to the advance from many of our US shareholders, while taking into consideration the rationality of stock market prices and tax savings, and ways to simplify our ownership structure.

We are aware that Asia is a global production center, where industry analysts gather. In addition, ChipMOS' partners are mostly located in Asia to support its current business focus.

ChipMOS along with subsidiaries ChipMOS Taiwan and Thailin Semiconductor are looking to start trading on the main board of the TSE during the second quarter of 2014.

Q: Can you share with us the company's diversification strategy, and intention to turn your focus away from the memory market?

A: In order to reduce its dependence on the memory sector, ChipMOS has diversified its offerings and put increased focus on fast-growth and high-margin product lines. The entry into the LCD driver IC market marked our first move to diversify away from memory products.

The number of backend houses specializing in LCD driver ICs has been reduced signficantly over the past few years. Companies intend to have a second-source alternative to Chipbond Technology, which has long been a main supplier in the sector, and ChipMOS is benefiting from the trend despite its late entry.

ChipMOS has also tapped the market for niche-market logic and mix-signal ICs, including e-compass sensors, power management ICs, timing control ICs and fingerprint sensors. In recent years, we have developed wafer-level and flip-chip packaging technologies for these applications.

We believe that the growing market for portable electronics devices will continue to spur demand for LCD driver ICs, MEMS sensors and other key components, which ChipMOS' extended backend services already cover.

ChipMOS has well improved its product mix. In the first half of 2013, sales generated from the LCD driver IC sector accounted for 40-45% of company revenues, followed by those from DRAM products with 30%, NAND flash with 20% and others about 7%.

Q: As a driver IC backend house, what is ChipMOS' outlook for the global LCD driver IC market?

A: The outlook for small- and medium-size LCD driver ICs is promising thanks to the fast-growing smartphone and tablet markets. Along with rising demand for high-resolution panels, related LCD driver IC firms are expected to see their businesses boom.

The popularity of Ultra HD TV sets is key to growth in the large-size panel driver IC sector, as Ultra HD TV panels require higher display resolution than HD TV ones. The number of driver ICs for use in Ultra HD TV panels is 200-400% more than that for use in HD TV panels.

Q: ChipMOS' deployment in the logic IC sector has born fruit by grabbing orders for e-compass sensors from Japan-based AKM. Can you tell us about the achievement?

A: ChipMOS' plans to enter the logic IC sector are to focus specifically on niche-market segments in order to avoid competiton from Advanced Semiconductor Engineering (ASE) and Siliconware Precision Industries (SPIL), which dominate the mass-market logic IC backend market. However, the company adopts a cautious approach to purchase new equipment for logic IC packaging and testing.

In 2012, ChipMOS signed a contract manufacturing agreement with AKM, which was looking for a second production base. Under the agreement, AKM would consign to our subsidairy Thailin certain sets of its depreciated equipment and in return, Thailin would utilize the consigned equipment as dedicated capacity to provide semiconductor testing services to the customer. Though sales generated from the orders are low, the profits made from the contract are higher than ChipMOS' average profit level due to the elimination of equipment expenses.

ChipMOS expects sales generated from the logic IC sector to account for 15-20% of company revenues by the end of 2015, from the current 7-8%.

In addition, ChipMOS has been developing new packaging technologies to extend its services for logic products. In addition to wafer-level and FC packaging, ChipMOS has its thick-plated copper process ready and started using the technology for power management chips.

ChipMOS is also eyeing the market for fingerprint sensors for use in smartphones. The company has been approached by some international vendors regarding backend services for fingerprint sensors. ChipMOS is currently working with a US-based fingerprint IC company that uses capacitive touch technology for its products.

ChipMOS is looking to develop its offerings for fingerprint sensors for two reasons. One reason is that fingerprint sensors will play a major role in future consumer electronics products, and therefore the market outlook is optimistic; the other is that ChipMOS' existing 8- and 12-inch bumping and COF packaging capacity is ideal for touch-capacitive fingerprint sensors.

Q: How about the company's outlook for the memory market?

A: Micron Technology's acquisition of Elpida Memory has helped the industry supply and demand return to a healthier status, and chip prices rebound. Such favorable market condition has also eased the pressure on backend quotes.

ChipMOS has secured packaging orders from Micron, and provides testing services for Winbond Electronics, Elite Semiconductor Memory Technology (ESMT) and Macronix International. Currently we have no plans to build additional capacity and invest in new equipment, except for NAND flash and eMCP devices.

Q: Does the company have plans to expand capacity for other product lines?

A: ChipMOS' production lines for LCD driver ICs are running tight, which encourages the company to continue building new capacity for 12-inch bumping and high-end testing in the next few years.

The efforts to expand 12-inch bumping capacity are to satisfy growing demand from our LCD driver IC customers, which have now preferred 12-inch fabs to produce their high-resolution products.

Nevertheless, ChipMOS remains cautious about capex over the next couple of years. ChipMOS' annual capex will stay at an amount equivalent to about 15% of company revenues in 2014-2015.