Devices are constantly undergoing transformations along with the rest of the communications world. If a person doesn’t know that wireless communications is king, they must be straight out of a Geico commercial. The paradigm shift to wireless communications is most definitely applicable to the medical industry.
Given the state of the industry and ongoing quest to slash costs while maintaining performance and still setting the pace for revolutionary devices, medical device communications are definitely in the industry limelight; although not necessarily something that the average, everyday consumer -- or investor -- takes into consideration.
A company that is capitalizing on the strong demand for next generation medical products is Ottawa-based and multi-listed Zarlink Semiconductor, Inc. (OTCBB:ZARLF) (TSX:ZL). Zarlink is engaged in developing a wide array of mixed-signal semiconductor products for communication and medical applications.
The Company provides line circuit products (i.e. access infrastructure products for voice-over-broadband residential and business equipment); analog phase locked-loops for synchronous optical network/synchronous digital hierarchy applications, a range of voice processing products for the transmission of voice, data, and multimedia services over converging circuit and packet infrastructures; and medical implant communication service radio chips and modules wirelessly link implanted medical devices, including pacemakers, defibrillators, neurostimulators, drug pumps, and physiological monitors used in monitoring, diagnostic, and therapeutic applications; medical implant ICs comprising mixed-signal complementary metal-oxide semiconductor chips for cardiac pacemakers.
If you just said "wow" because of all that is in Zarlink’s portfolio of products, understand that those just listed are only a small portion of the products that Zarlink brings to the table.
Whether it a sheer result of overall magnitude of diversification or not, revenue is certainly booming for Zarlink. Today, the Company released news of its first quarter revenue for fiscal 2012 which showed it to be at the high end of guidance -- a rarity it seems in today’s economy --that it claims was driven by timing and medical wireless demand.
Numbers that are extremely rare in the OTCBB world were produced in the first quarter including $55.4 million in revenue (yes, that’s one quarter) and GAAP net income of $0.02 per share with non-GAAP net income of $0.05 per share. Revenue was up $0.06 million from the previous quarter with timing products revenue growing by 21% over the fourth quarter of fiscal 2011. Revs from medical wireless popped by 9%. Even with the pronounced revenue, gross margin came in at a whopping 53%.
Moreover, things are looking to slow for Zarlink as a new long-term supply agreement with industry leader Medtronic will begin shipping by the end of 2011. Cash on hand still tallies $130.7 million at the end of fiscal 2012 Q1, a rise of more than $30 million from the year prior quarter even after using $25 million to redeem all $2.00 Cumulative Redeemable Convertible Preferred Shares, 1983 R&D Series.
While this is only a mere sampling of the numbers produced by Zarlink, the remainder of the financial report is equally impressive and certainly inline (or perhaps even undervalued) for a firm with only 120 million shares outstanding. If value is truly based on future earnings and many companies trade at five times earnings, then Zarlink could certainly be perceived as trading at the lower-end of the equation.
Apparently investors (as well as Microsemi) saw the same thing as the stock value gapped northward by more than 50% to nearly $4 per share a couple weeks ago after Microsemi announced it will be hosting a conference call to discuss the proposed acquisition of Zarlink.
While many investors look down their noses at the Over the Counter Exchange, Zarlink is just another example of the diamond that trades on the exchange and still, even at current rates, could provide a great deal of potential for future growth.
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