Opinion: Blue sky for CSR's Bluetooth and share price
CSR's share price shot up by over 400% in the 22 months to the end January, when for no apparent reason, it ran out of puff. Since then it has shed almost 15%.
Perhaps a few of the early buyers of the shares shortly after it listed in February two years ago decided to take their profit. We are all pessimistic by nature and tend not to believe that good things last forever.
However, nobody much has said anything for a while, until Thursday morning, when the respected Swiss-owned investment bank and broker UBS said enough was enough. It switched its recommendation to clients from 'neutral' to 'buy'. It said it thought its own estimate of CSR's future sales were unduly conservative.
We'll get a better feel for this next Tuesday when CSR releases its financial report for 2005. Maybe there are a few street-smart share traders betting the market has over-estimated CSR's result and have 'gone short', as they say, which has dragged the price down.
Then again we've been here before. A year ago one or two analysts were concerned that the market for CSR's business - Bluetooth chips - was maturing. They were wrong.
2005 Results Due on Tuesday
I don't know what Tuesday's announcement holds and I don't trade shares on a short term basis. But by most markers, you'd have to conclude that CSR has a bright future, whatever next week's precise details turn out to be.
In this job you get a might irritated by every company claiming to be 'the leading global widget maker', yet in CSR's case it really is "the leading global provider of Bluetooth technology".
Its BlueCore chip is in over half of all Bluetooth devices shipped worldwide. Three out of every five Bluetooth-enabled products made by industry leaders Nokia, Dell, Panasonic, Sharp, Motorola, IBM, Apple, NEC, Toshiba, RIM and Sony host a CSR chip.
In the middle of 2005 the Bluetooth market was reckoned to be about 228 million units a year. According to the estimates by the respected IMS Research (in November last year), the market is set to double in the next two years to reach about 600 million units. By 2010 its central prediction is for a market of one billion units a year. After that, they reckon, there's a good chance market growth will slow to an annual rate of maybe 10% a year.
While I haven't seen it provide any numbers, I don't think CSR executives see that slowdown. They do expect some segments of the market to eventually see slower growth, but they see new applications all over the place.
As Eric Janson CSR's VP Application Engineering (pictured) told a gathering of analysts late last year: "There are plenty of devices still to be free from wires".
R&D spending up
And CSR has maintained the pace of innovation to seek out those opportunities. It doubled R&D spending in 2005, increasing it slightly as a percentage of revenue to 12.4% (to end September '05) from 11.1% in 2004. Piecing together company statements, full year revenue for 2005 could be around £485m, up from £253m the previous year. This factors in the Christmas slowdown, the seasonal variation that spooked some analysts last year.
It has launched its fifth generation BlueCore chip, which, the company says, addresses the vision for the Bluetooth industry. Made in 0.13micron CMOS, die size is 40% smaller than BlueCore4 (now in volume production), providing good economy and power-efficiency for mass market applications. Performance is also boosted, with a next generation-ready chip incorporating enhanced data rate capability, plus a host of detail improvements such as an improved radio, more memory, and integral DC-DC converter and battery charging circuitry.
With this introduction, CSR says it has also embarked on a strategy called BlueMedia, which will see more and more non-Bluetooth functions integrated to drive emerging applications.
Corporate takeovers are more worrying for this armchair analyst, because their general record of success is poor. Yet the announcements of the CSR two takeovers in 2005 were refreshingly free of the management-consultant speak that corporate egos like to shield behind. It was technology, not elusive synergies, that drove them.
In March, it acquired Clarity Technologies, for its Clear Voice Capture technology that boosts the audio performance of any voice-based product or system. Applications for CVC include wireless headsets, handsets and automotive hands free systems.
In August, CSR completed the acquisition of UbiNetics’ software business, providing an R&D team to speed up its existing software development in Bluetooth, Wi-Fi and UWB.
Still, having a bright future doesn't mean just any share price is appropriate. CSR is on a price earnings ratio of 34.4. That other Silicon Fen heavyweight and quality chipmaker ARM Holdings is on 62.3. Autonomy, the well-regarded software house, is on 87.7. Surely CSR's business prospects are in the same ball park?
