The Day Ahead: ChipPAC's IPO could pack a wallop

Chip test and assembly gear maker ChipPAC could produce impressive IPO results
Written by Larry Dignan, Contributor

ChipPAC has all the makings for a hot initial public offering this week. Here's the recipe: take a profitable company in a hot sector, toss in some strong growth and just add the stock gains.

The company, which is expected to price tonight for trading Tuesday, makes test and assembly gear for a host of leading chip makers. ChipPAC's packaging products address the needs of semiconductors used in wireless and wireline communications applications.

ChipPac is offering 15.5 million shares expected to price between $20 and $22. CS First Boston is the lead underwriter.

In fact, the only thing that could derail enthusiasm for ChipPac is its wireless pedigree. Nokia's a few weeks ago dinged the whole wireless sector, including some of ChipPac's largest customers. Aside from the wireless bubble bursting, it's hard to find fault with ChipPac.

The company supplies many of the largest flash memory makers such as Atmel, Intel, STMicroelectronics, Advanced Micro Devices (AMD) and Hyundai. It also has customers serving the likes of Qualcomm, Lucent and others. Qualcomm has agreed to enter into a three-year supply agreement with the company.

Following the IPO, ChipPac will count Intel, Qualcomm, Intersil and Hyundai as shareholders.

Those big partnerships have paid off on the bottom line. Yes folks, ChipPAC has a bottom line. For the year ending 31 December, the company reported pro forma earnings of $19.2mon sales of $477.4m. For the three months ending 31 March , ChipPAC reported earnings of $7.25m on sales of $120.4m.

Among the biggest risks for ChipPAC is the cyclical nature of the chip business. It's either boom or bust and some analysts reckon the market is near a top. If ChipPAC went public a few months ago it would be a no brainer -- chips and wireless were the two hottest sectors.

Now there's evidence that both markets could be cooling off a bit. Nevertheless, ChipPAC looks like a strong contender. It is well positioned abroad and is one of the leaders in its niche.

After yet another week of earnings, IPOs and volatility, the stock market retools for the financial results from three tech bellwethers. Cisco, Applied Materials and Dell.

The results are expected to be positive, but investors will be reading between the lines on all three companies' conference calls.

Here's a look at what's expected:

Cisco: When you're growing as fast as Cisco, what can you possibly worry about? Slowing growth. Look for Cisco to maintain its healthy paranoia when it reports its fourth quarter results Tuesday. Wall Street consensus: $0.15.

Applied Materials: Most folks yawn when Applied Materials reports earnings, but this chip equipment maker gives the best read on the semiconductor industry. After all, most chip makers buy gear from Applied Materials, which reports its third quarter Wednesday. Consensus: $0.68.

Dell: In recent quarters, Dell talked down Wall Street to growth predictions of about 30 percent. Now one analyst -- Ashok Kumar of USB Piper Jaffray -- is sounding the warning bell. Kumar thinks Dell can't sustain growth of 30 percent because it doesn't have traction in many of its growth businesses. Kumar downgraded the company to buy from strong buy ahead of Dell's second quarter earnings report Thursday. Consensus: $0.21.

See Chips Central for daily hardware news, including an interactive timeline of AMD and Intel's upcoming product launches.

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