Trident Microsystems (TRID) shares are heading sharply higher this morning after Needham analyst Rajvindra Gill upgraded the stock to Buy from Hold, with a price target of $5, or nearly twice yesterday’s close at $2.68.
Yesterday, the company made two noteworthy announcements. For starters, Trident said it now expects to report revenue for its fiscal first quarter ended September 30 of $31 million, well above previous guidance of $22 million to $25 million. The company now sees a non-GAAP operating loss of about $10 million, rather than the previously forecast $12 million to $14 million. Trident sees quarter-end cash of about $161 million, slightly lower than previously forecast, due to “timing of working capital.”
Meanwhile, in a deal that will dramatically transform the company, Trident also said it will acquire NXP Semiconductors‘ TV systems and set-top box business, in exchange for Trident common shares equal to 60% of the post-deal shares outstanding, including 6.7 million shares that NXP will buy at $4.50 a share. After the deal, Trident expects to have calendar 2009 revenue of about $500 million.
Shares issued to NXP would be subject to a two-year lock up agreement. Trident CEO Sylvia Summers keeper her post; Christos Lagomichos, who was EVP of NXP’s Home business unit, becomes Trident’s President.
Trident said it expects to generate revenue of $140 million to $160 million the June 2010 quarter, the first full quarter post-closing, with break-even non-GAAP profits as early as the end of calendar 2010.
Needham’s Gill writes that Trident had been struggling in the digital TV market after losing share to competitors, but that this deal helps the company consolidate share in the competitive sector. Gill estimates the value of the transaction at about $200 million, which he asserts is “a good deal for TRID.” He notes that the company is trading under 0.5x EV/sales post acquisition. He notes that the company will have about $180-$185 million in cash.
Gill now sees revenue for the June 2010 year of $246.5 million, up from $100 million, with a loss of 39 cents, versus a previous estimated loss of 70 cents. For FY 2011, his revenue estimate hikes to $670 million from $135 million, with a profit of 5 cents, versus an old estimate of a loss of 60 cents.
TRID today is up 13 cents, or 4.9%, to $2.81.