Three breakthrough tech stocks

Shlomi Cohen

Nova, QuickLogic and SuperCom are all looking at high growth this year.

The main share indices in the US retreated by about 2% last week, and in Japan the Nikkei dropped 6%. Since the start of this year, the indices have not managed to surmount the "wall of worry" facing them, and to continue the sharp climb seen last year. The worry is mainly geopolitical, concerning the crisis in Ukraine, while, on the macro level, it concerns the consequences expected this year from the slowing of the Chinese locomotive.

On the micro level, several small companies in the portfolio, both Israeli and American, presented last week at a large investor conference held by Roth Capital in California. Among the presentations that were webcast I was particularly impressed by the optimism about 2014 expressed by managers from Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), QuickLogic (QUIK) and SuperCom Ltd.(Euronext:SUP; Bulletin Board:SPCBF).

Nova and QuickLogic, each in its field, are expected to continue growing this year as vendors to the huge smartphone and tablet markets. Although these markets are showing signs of slowdown in their rates of growth, a significant rise is expected in the performance demands placed on the processors in these devices, because of the sharp growth in the quantity of complex and heavy applications serving millions of users at the same time.

This means growing demand for Nova's advanced metrology systems, for measuring and inspecting the processor production lines, as production geometries become smaller as part of the improvement in processor performance. As far as QuickLogic is concerned, demand for its processors is expected to accelerate. These provide solutions for viewing quality, connectivity, and handling of the many sensors that will be installed in every smartphone, tablet, and wearable gadget.

The third company, SuperCom, which provides infrastructures for smart identity documents to developing countries, mainly for passports with advanced means of identification, will be able to leverage the story of the forged passports used by passengers on the missing Malaysian Airlines plane.

The attack on New York's Twin Towers in 2001 was the great trigger for implementing advanced identification solutions in the developed countries, with the US in the lead, and a dramatic event such as that of the missing aircraft, however it ends, will contribute towards an acceleration of the same process in developing coutries.

When, in his presentation, Nova CFO Dror David repeats the guidance for the first quarter, two weeks before the quarter ends, we can assume a high degree of probability that we are looking at an all-time record quarter, with sales in the $33-35 million range.

This means growth of at least 10% over the final quarter of 2013, and of more than 20% over the corresponding quarter last year. Nova began 2014 with $100 million in the bank, representing a third of its market cap, and this cash will enable it, sooner or later, to make acquisitions.

In the first quarter, and over the rest of the year as well, Nova's profit line will rise much faster than its sales line, because the high level of R&D that it embarked on in the past two years is coming to an end. Higher R&D spending enabled Nova to launch more advanced products than those of its competitors, to grow at a faster rate than that of the market in which it operates, and to record an impressive statistic: 80% of iPhone processors are manufactured on product lines controlled by its equipment.

I have been waiting for QuickLogic's business breakthrough since 2011, and it came about a year ago, when Samsung first put its display enhancement solution in its high-selling tablet, at the same time reducing energy consumption. Earlier this year, Samsung also embedded the solution in the lighter version of the tablet, aimed at developing countries.

In addition, QuickLogic has announced the integration of the same solution in two new tablets from first tier computer manufacturers, and with Chinese manufacturers. These breakthroughs into tablets will take the company to sales of over $10 million in the quarter to March, representing growth of more than 235% in comparison with the corresponding quarter of last year.

As for the smartphone market, which is much larger than the tablet market, QuickLogic is expected to penetrate it in a significant way in the second half of the year, with the new solution that it launched last year. This is round-the clock smart management, with minimum energy usage, of the information that flows from the many sensors already installed in the new smartphones and there will be many more in those that will be launched in the future.

QuickLogic CEO Andrew Pease indicated in his presentation that his company got to know the world of sensors mainly in the course of working with Samsung on the display enhancement solution for tablets. They realized that, even today, there are eighteen sensors on one Samsung tablet, which means that, on smartphones, there will be many more, for detecting and processing information during sporting activity, medical information round-the clock, and, above all, gathering information about movements, for more focused advertising.

The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.

Published by Globes [online], Israel business news - www.globes-online.com - on March 17, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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