M/A-COM Technology Up 4.3% In Early Trading Post-IPO

Semiconductor company M/A-COM Technology Solutions Holdings Inc. (MTSI) made modest trading gains during its first day as a public company Thursday.

The company's stock opened at $19.10 a share on the Nasdaq, essentially flat from its initial public offering price of $19, but rose from there. It hit a high of $21.10 before moving lower, changing hands recently at 19.80, up 4.3%. It sold 6 million shares at the high end of its expected $17-to-$19 range.

Based in Lowell, Mass., M/A-COM specializes in analog semiconductor chips for use in products ranging from automobile navigation systems to magnetic resonance imaging systems. It focuses on three markets: telecom; aerospace and defense; and what it describes as multimarket, which includes automotive and scientific applications.

M/A-COM says its engineers collaborate with customers as they develop products so that it can customize its chips for their needs and become their sole source on design wins. It has 155 new products in development that it believes will increase revenue growth and gross margin.

Many of its existing products have long lifecycles, ranging from five to 10 years, and some of its products have been shipping for more than 20 years. Its largest customers include Alcatel-Lucent SA (ALU), Cisco Systems Inc. (CSCO), Rockwell Collins Ins. (COL) and Ford Motor Co. (F)

The company says demand for its products is driven by the growth of mobile Internet devices, cloud computing and streaming video that strain existing network capacity, as well as the growth in military applications. A greater need for real-time information, sensing and imaging in other markets such as automotive and scientific is also increasing demand.

M/A-COM booked revenue of $310 million in fiscal 2011--its fiscal year ends in September--up 19% from fiscal 2010 as it shipped more products, and recorded a net loss of $1 million compared to net income of $7 million. In the three months that ended December, revenue decreased 2.5% to $73 million, and it recorded net income of $22 million compared with $8 million in the same period of 2010. The revenue decline was due primarily to a slowdown in capital spending by telecom companies and the effect of shipment delays and order cancellations after its contract manufacturer in Thailand flooded.

Like many semiconductor designers, the company operates in a cyclical industry that is exposed to price erosion, and the constant need to develop new products to replace ones that are generating less profit. It is in a fiercely competitive industry, with Hittite Microwave Corp. (HITT) its rival across all three of its primary markets.

The company operates its own fabrication factory in Massachusetts--a domestic foundry is often a requirement to be a supplier in the aerospace and defense industry--which it says gives it better control over supply and quality of its products. It also contracts with third-party foundries during periods of high demand, which it says gives it flexibility to scale up without the cost of operating more facilities. Still, operating even the one foundry can drag on margins due to fixed expenses during periods of lower customer demand, the company warns.

Barclays Capital, J.P. Morgan Chase & Co. (JPM) and Jefferies Group Inc. (JEF) managed M/A-COM's offering.

-By Lynn Cowan; 202-257-2740; lynn.cowan@dowjones.com

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