OIIM: O2Micro Hits Profitability and Positive EBITDA in Q2

By Lisa Thompson

NASDAQ:OIIM

READ THE FULL OIIM RESEARCH REPORT

Sales continued strong in Q2 at O2Micro (NASDAQ:OIIM) coming off a strong Q1 as it is benefitting greatly from global stay at home orders. Almost everything it sells product into is affected: TVs, laptops, monitors for gaming and medical devices, garden tools, power tools, and ebikes. Demand remains strong from customers. Fortunately the company also right sized the business to focus on higher margin products in Q2 and should emerge a consistently profitable company for the first time in years. By cutting staff sufficiently we expect the company to continue to show profits going forward. This cost cutting produced a surprise profit both on a GAAP and non-GAAP basis and as revenues rise, and expenses continue downward for two more quarters, the profit margin will widen. EBITDA was $1.8 million this quarter and if it tracks with the average fabless semiconductor company that margin could double as a percent of sales.

Q2 Results

Revenues were $17.3 million compared with $14.3 million in Q2 a year ago, up 21%. Guidance for revenue for the third quarter of 2020 was for revenues between $17.6 and $19.0 million or a midpoint of $18.3 million, which would be growth of 14% year over year. For Q2 the gross margin was 51.2% compared to 50.1% a year ago and 51.9% in Q1 2020. The company said to expect Q3 2020 gross margin to be in the range of 50-52%.

Reported total operating expenses increased to $9.5 million up from the $8.7 million spent in Q1 2020, but down from the $9.7 million in Q2 2019. Included in these expenses was a one-time charge of $1.2 million for severance. The company went from 370 employees in Q1 to 289 in Q2. Without that charge operating expenses were only $8.4 million.

The company reported a GAAP net income of $380,000 versus last year’s loss of $2.8 million last year. This yielded GAAP EPS of $0.01 versus a loss per share of $0.11 a year ago.

Non-GAAP income was $805,000, versus a loss of $2.2 million last year. This yielded a non-GAAP EPS of $0.03, versus a loss per share of $0.08 last year.

On June 30, 2020, the company had $41.4 million in cash and equivalents (or $1.53 per ADS), down $3.3 million sequentially.

In Q2 the company streamlined operations for profitability; the company’s cash breakeven point is now between $14-16 million and the profit breakeven to $16-18 million. The full effect of these cost savings efforts will be felt in Q4 2020.

During the quarter strength in TVs, HDR monitors, garden and power tools, ebikes and even medical monitors continued. Both intelligent lighting (TVs and monitors) and battery management are exhibiting strong demand. Over 90% of the company’s sales come from TVs and battery-powered devices.

Intelligent lighting again did very well in Q2 as TV viewing increased and consumers continued to upgrade to 4K and 8K TVs. The company is introducing improved technology that eliminates motion blur and halo effects by doing multi-scan refreshes. The technology is starting being used in HDR monitors (for gaming) and migrating to TVs where 2 scans are moving all the way up to 16 plus scans for high-end televisions. O2Micro has a patent application for this technology.

The battery business continues to have excellent growth. Battery prices have declined from $1,100 per KWH to $150 today and are projected to sink to $100 per KWH by 2023. This opens up economics for formerly corded appliances and tools to become battery operated. One such appliance is Dyson’s highly acclaimed new cordless Corrale hair straightener that does the job without damaging heat, and can get it done in five minutes versus 45 minutes according to some reviewers.

Figure 1. Dyson Cordless Vacuums

Source: Shutterstock

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