New Personal Buy: O2Micro

By Travis Johnson, Stock Gumshoe, March 18, 2011

No, I don’t care about “Chi-Tab” projections, but the stock that was teased as a beneficiary of the so-called Chi-Tab revolution in China by Frank Curzio got pretty appealing this week, written down not only because of global market weakness but because of more specific concerns about pretty much all small cap Chinese stocks due to yet more revelations of accounting problems at some firms (including the one that was teased as a “short squeeze” just over a week ago, China MediaExpress, which is still halted as of Friday and has seen the resignation of the auditor and some key players).

Assuming that the accounting is OK at O2Micro (which may be considered a leap of faith in this environment, though there hasn’t been any indication that there’s any problem), then OIIM is very well positioned — they are profitable, they have more than half of the market cap in cash, they have patents and design wins and have reportedly placed their key backlighting and power control technologies into several hot products, including the iPad (I’ve seen that reported but can’t confirm it, given Apple’s secrecy), and their positioning for power conservation and control chips in all kinds of new products, particularly automotive LCDs, power control systems, and battery management, I think they should be in pretty good shape. They’re cheap because they’re Chinese, they’re small, and they’re in a competitive business, but they ahve enough of a history and strong enough customers that I’m inclined to believe their numbers. Their auditor is a big and reputable one in Deloitte, but of course Deloitte was also auditing China MediaExpress, an auditor can’t always reveal problems, particularly in a timely manner, if the company isn’t giving it real data.

This is obviously not a recommendation for you to buy OIIM, but I think the price has come down enough that it’s an interesting speculation on growth in electric cars (very long term) and in more battery-hungry consumer LCD screens (shorter term) … do note that the stock can move in a pretty wide range of late and the spike up to $8+ was a new development on iPad speculation, a brief return to a love affair with China, and, probably, Frank Curzio’s recommendation and the hefty teaser campaign that followed it, if it continues to fall without any negative news I might look to add to the ...

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