OIIM: Inventory Corrections for Battery Management Products Are Expected to Affect Q3 2022

By Lisa Thompson

NASDAQ:OIIM

READ THE FULL OIIM RESEARCH REPORT

O2Micro (NASDAQ:OIIM) reported another quarter of down revenues but within guidance and better than expectations. The positive was negated by guidance below the street for Q3 as it suffers an inventory correction in its battery management business which are sold into power tools, vacuums and other portable products. The company has also been impacted by quarantines in China which although less severe than before (e.g. three days rather than seven), still affect business and travel.

Intelligent lighting products are getting better supply as O2Micro now has a second source and supply chain issues are abating. It is optimistic about sales as industry growth of high end TVS continues over 20%. The company cited a new report by Grand View Research, Inc. that said it expects the 8K TV market is expected to grow at a CAGR of 32.9% between 2021 and 2026, while the global 4K TV market size is expected to reach $380 billion by 2025, at a CAGR of 21.2%. 8K is moving from professional use to consumer and the company is particularly looking forward to more usage of Full Array Local Dimming (FALD) technology, mini-LEDs, and multi-scan technology. For mini-LEDs, O2Micro has new products targeted for tablets and notebooks as well as monitors and TVs and expects to be in high volume production in 2023.

For Q3 2022, O2Micro expects revenues between $17 million and $19 million or a midpoint of $18, which is down significantly sequentially, and a decline of 34% year over year. The decline could be entirely in battery management due to inventory correction as TV are still catching up as supplies were restricted. Q4 revenues could be sequentially flat even though the inventory correction resolves, as the company will enter its seasonal weak period. However, with better backlighting product availability, improving supply chains and the ability to ramp in the automotive market with its newly available supply, the company is optimistic about 2023. In automotive in addition to its legacy business selling monitors used in cars, and battery management applications, the company has multiple customers interested in advanced products for DMS (Drive Monitor System) where the company expects to become an industry leader. Now the biggest worry is the global economy and consumer demand—something no one can predict.

For Q3, O2Micro expects gross margins between 50% and 52%. For 2022 we are again reducing revenues. We now forecast $80 million in revenues for 2022 with non-GAAP ADSPS of $0.10. This puts the current valuation of EV to 2022 estimated sales at 0.8 times.

The review of the potential offer to buy the company at $5.50 per share is still being evaluated by an independent panel and there has been no news. It is still going through the process and management has no idea when it will be done. If anything had changed, shareholders would have been informed.

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