audience

Company Introduction

Audience Inc (NASDAQ:ADNC) was founded in the year 2000 and is headquartered in Mountain View, California. The company provides voice and audio processors for mobile devices worldwide. The Company develops technology for mobile devices to deliver voice and audio quality for talking, playback, video, and music. Audience, Inc. sells its voice and audio processors to original equipment manufacturers and their contract manufacturers through its direct sales force, third-party sales representatives, and distributors.

Stock Snapshot

As of 28th September 2012, the stock for Audience Inc. closed at USD 6.2 per share with total market capitalization of USD 126.08 million. The stock has been trading at a P/E ratio of 11.65, a P/S ratio of 1.18 and a P/B ratio of 0.95. Over the last three months, the stock has witnessed an average daily volume of 303,280 shares.

Competitor Analysis

Marvell Technology Group Ltd. (NASDAQ:MRVL) designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone ARM-based microprocessor integrated circuits. As of 28th September 2012, the stock for Marvell Technology Group traded at USD 9.15 resulting in a P/E ratio of 11.72 million, a P/S ratio of 1.57 and a P/B ratio of 1.08.

Financial Analysis

Top line For 6MFY12, the company reported revenues of USD 64.4 million as compared to USD53.4 million for 6MFY11; an YOY increase of 20.6%. In 6MFY12, revenue relating to hardware segment constituted 62.9% of the total revenues whereas revenues from the licensing segment constituted 37.10% of the total revenues. In the corresponding period last year, 100% of the revenues related to the hardware segment. The hardware revenue decreased YOY by 24% mainly due to the company’s largest Original Equipment Manufacturer (OEM) transitioning the majority portion of their business from the purchase of the company’s processors to licensing of the processor IP for a royalty.

Gross Profit For 6MFY12, the company reported gross profit of USD 38.4 million compared to USD31.4 million for the corresponding period last year. The gross profit margin for 6MFY12 stood at 59.6% whereas in 6MFY11 the company reported gross profit margin of 58.9%. The gross profit margin was higher due to higher margin royalty revenue from the licensing of the company’s processor IP, and was partially offset by the increased sales of lower margin stand-alone processors and the write down of excess and obsolete inventory.

Net Earnings For 6MFY12 the company reported net income of USD 8.49 as compared to USD 11.5 million for 6MFY11; an YOY decrease of 26.3%. The company recorded diluted earnings per share of USD 0.33 in 6MFY12 as compared to USD 0.51 in 6MFY11 thus registering a YOY decrease of 35.3%.This was mainly due to 33% higher research and development expenses as a result of increase in head count. Selling general and administration expenses also increased by a staggering 73% as a result of increase in head count. Provision for income tax for 6MFY12 was USD 265,000 compared to nil for 6MFY11 as a result of income taxes in foreign jurisdictions as the company’s new international structure became operational on January 1, 2012.

Financial Position

As of 30th June 2012, the company had USD 112.5 million resulting in a cash value per share of USD 5.54. The company has a book value per share of USD 6.63.

Factors to Watch Out For:

* Debt free company!

* Cash value per share of USD 5.54 which represents 89% of the share price! Stock represents cash value!

* Book value per share of USD 6.63 is 107% of the share price!

* The share have fallen since the the Company disclosed that Apple Inc. (NASDAQ:AAPL) was unlikely to use its processor intellectual property in the iPhone 5, which was expected to be launched in the second week of September. Apple’s licensing of the Company’s processor intellectual property had accounted for 37% of Audience’s total revenue for both the three and six months ended June 30, 2012. Following this news, shares of Audience declined almost 60%….something for value investors to watch out for!