Intellon Corp. (ITLN) is a fabless semiconductor company that designs, develops, manufactures and markets integrated circuits (ICs) for powerline communications or high-speed communications over existing electrical wiring.
The company's top and bottom-line results beat consensus estimates as home networks continue to grow. The home network market will grow from $8.3 billion in 2004 to 17.1 billion in 2008. Revenue for the quarter was $16.3 million, up 3.8% sequentially and up 68.0% year over year. Gross margin for the quarter was 45.0%, up 140 basis points (bps) from the previous quarter's 43.6%. The margins are trending up and we see the string of quarterly losses ending in the second half of 2008.
ITLN is currently trading at a 12.2x multiple to 2009 estimated earnings. The management expects the next generation HomePlug AV-based IC to be based on a 65 nanometer process and when this takes hold, margins should rise. High Oil and Gas prices tend to hurt overall semiconductor sales, as consumers simply have less to spend on electronics, but we feel home electronics may be the exception here.
Consumers may upgrade home networks rather than take expensive vacations. Regardless of the short-term tail wind of fuel, Intellon should outgrow the broader semiconductor market. We are initiating our coverage of ITLN with a Buy rating, and setting a price target of $8.00, which represents a 17.7x multiple to 2009 earnings.
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