Recharging with this Wireless Power Play

Posted On June 23, 2015 12:26 pm

I first took a look at Integrated Device Technology (IDTI) last December. Since then shares have gained some 27% to $23.50 and the value of the January $17 calls we suggested purchasing at $2.50 have tripled to $7.50 a contract. I think shares could move up another 25% by the end of the year.

What originally drew to this company was as a means to play the burgeoning growth in wireless power. That is the ability to recharge devices, especially phones, tablets and watches, without plugging them in. Powermats for the home and recharging WiFi hotspots in airports, hotels and places like Starbucks will become more ubiquitous in coming years. Research firm HDI predicts the market will be worth $7.5 billion in 2017 as compared to just $216 million in 2013.  So this is the area where I expect the company to deliver accelerated growth over the long term. But it remains something of untapped green field at this point.

Solid Core Business

But in the six months since that original article we’ve had a chance to see two quarterly earnings reports that show IDTI has a solid business with core product line that’s showing solid growth.

For fiscal 4th quarter posted May 5th the company had revenue of $158.4 million and earnings of $0.26 per share; a 85% and 37% increases over the year ago period. Analysts have now been raising estimates and now expect 95% growth for 2016.

Following the report shares went on a nice run, gaining some 20% in nearly a straight line over the next month. They have now spent the past few weeks consolidating above the important $22 level.

IDTI 062315

The company has narrowed its focus to three main categories; Communications infrastructure, High-performance computing and Flexible power management. It’s the flexible power unit, which includes, the wireless charging, that has enjoyed the greatest growth as IDTI provides chips and technology that help devices run more efficiently.

All of the tablet, accessory, and especially wearable consumer electronics that have been so in demand require systems to optimize their power usage. On that front, IDT should have plenty of customers for their flexible power management products. the management team demonstrated adept navigation of the markets by stating that “we are not targeting power management areas we consider to be commoditized or crowded competitively” in its company report. Instead it is providing value added components that will lay the groundwork for wireless charging.

IDT should also see massive demand for its communications infrastructure products due to China’s expansion of 4G service offerings. Earlier this year, the Chinese government granted 4G LTE licenses to wireless carriers China Telecom and China Unicom. Previously, the only carrier in China capable of providing such services was China Mobile, which added 53 million users to its 4G service platform in the first quarter of this fiscal year alone, bringing its total to 143 million customers now on 4G. With all those new customers on 4G, IDT will benefit from increasing demand for its data usage efficiency products.

Indeed smartphone maker LG recently announced it will build an IDT wireless power receiver chip into its flagship G4 model which is the second best selling device in the Southeast Asian market.

Consolidation of Power Players

The wireless charging market has already seen consolidation, with the announcement of an agreed merger between Power Matters Alliance and Alliance for Wireless Power earlier this year. With big players like Intel (INTC) and Samsung getting involved in wireless charging there could be room for more consolidation in the future.

Takeovers potential alone is not a reason to invest in a company but it is a nice possible catalyst for a higher share price.

The Trade:

Once again I want use a strategy that gives unlimited upside and plenty of time for the bullish thesis to play out.  This means making the outright purchase of call options. I’m targeting the January 2017 LEAPs with a $22 strike price. Specifically;

Buy Janury2017 $22 calls at $5.00 a contract.

While I think shares could tack on another 25% to $29 over the next six months using these long dated calls will mitigate time decay and allow us to ride out any short-term dips

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.