Bookkeeping: Starting Atheros Communications (ATHR)

A quick word on the overall market, we're still sitting at the "double top" condition that we peaked at yesterday and this morning. On a move over S&P 1040 I expect the computers to rush in like a tsunami of microchips. Every trader in the world is likewise waiting for this. In the old days, when everyone was looking for something it never worked. These are not the old days.

I have been stalking Atheros Communications (ATHR) for a few months now, wishing (praying, hoping) that it would come down and fill its gap at $23. This has not happened (countless other stocks I have limit buy orders for, refuse to go down to fill gaps either), so I am going to act like the rest of the investing world and chase after a stock. For now I am just going to put about a 1% stake on my sheets (at about $27.50) with the hopes I lose money on this first batch, so I can buy a much bigger stake lower.

This is another name that is part of the "wireless internet" movement which is the only real secular growth story in America I can identify.

Atheros Communications, Inc. develops semiconductor system solutions for communication integrated circuit products. Its products comprise wireless local area network, mobile WLAN, Ethernet, bluetooth, global positioning system, and personal access systems.

I had been expecting (similar to these RF stocks) raised guidance by Atheros mid quarter, which happened earlier this week but the stock did not react because it was overshadowed by an acquisition which costs additional shares (near term dilution). I consider that good fortune because normally this sort of news would of triggered a +10% type of move like we are seeing in other names. The acquisition is actually going to be accreditive to earnings in the 1st half of 2010 (that's just a bonus), but seems to have stymied the stock in the near term.

While it is much more fashionable to buy stocks that are trading at 60-80x forward estimates and/or have no earnings to speak of, and are slashing and burning their workforce to a crisp to "make the number", I'm still old school and like to buy companies in secular growth areas when possible. Atheros is one.

Via Reuters on the 8th

• Wireless networking chipmaker Atheros Communications Inc (ATHR) said it agreed to acquire semiconductor company Intellon Corp (ITLN) for about $244 million in cash and stock, and raised its third-quarter outlook. The agreement provides an overall value of $7.30 per Intellon share, the company said. This represents a 46 premium to Intellon's Friday close.
• Atheros expects to issue about 4.2 million to 5.1 million common shares and equivalents and pay about $115 million to $141 million in cash. Intellon shareholders may choose to receive either cash, or Atheros shares, or a combination of cash and stock.

Atheros had about 62M shares outstanding so 5M is about a 8% dilution - however as stated the company believes Intellon will actually add to earnings as early as first half 2010.

• The deal, which would help the chipmaker combine its wireless LAN and Ethernet products with Intellon's powerline communications technology, is expected to add to Atheros' adjusted per-share earnings in the first half of 2010.

Guidance got lost in the mix

• In a separate statement, Atheros also raised its third-quarter adjusted profit outlook to 35 cents to 39 cents per share, from its prior view of 29 cents to 31 cents a share.
• It now expects revenue of $145 million to $150 million for the quarter, up from its prior forecast of $129 million to $134.6 million.

(Analysts were in at 30 cents for the quarter a week ago, that has now jumped to 38 cents)

• Analysts on average were expecting earnings of 30 cents a share, before items, on revenue of $132.7 million, according to Reuters Estimates.

Via WSJ

Intellon, a 20-year-old company based in Orlando, Fla., makes chips that use existing electrical wiring to send data between devices in the home--avoiding the need to add new wires. The concept has taken off slowly in the U.S., but has proven popular in Europe, said Craig Barratt, chief executive of Atheros.

Atheros plans to integrate the technology with its other chips, so that devices such as wireless routers will have another way to communicate. Over the long term, Mr. Barratt said, appliances will likely be modified to send data directly through their power cords; right now, Intellon`s chips are frequently used in adapters that plug into wall sockets, but use Ethernet to send data between those adapters and the appliance, he said.

Long Atheros Communications in fund, no personal position