Knobias ClipReport (8-7-2007)

Submitted from Knobias ClipReport

The worldwide demand for complex and precise wireless telecommunications measurement and testing devices has increased significantly in recent years. The current scarcity of the number of these suppliers provides huge potential for suppliers of specific equipment that especially meet the needs of goverment defense agencies.

Giga-tronics, Inc. (GIGA) produces instruments, sub-systems and sophisticated microwave components that have broad applications in both commercial and military wireless telecommunications systems. The Company is organized into three segments. The Company's Instrument Division produces test and measurement equipment for wireless communications products and systems. These products are used primarily in the design, production, repair and maintenance of commercial telecommunications, radar, and electronic warfare equipment. Its ASCOR division offers a line of switching and interface test adapters, as well as complete system integration services to the Automatic Test Equipment market. The Microsource division develops and manufactures tuned oscillators, filters and microwave synthesizers, which are used by its customers in manufacturing a wide variety of microwave instruments or devices.

Various U.S. government defense agencies, as well as their prime contractors, accounted for 61% of net sales in fiscal 2007. Commercial business accounted for the remaining 39%. Other than U.S. government agencies and contractors, no other customer accounted for 10% or more of consolidated revenues of the Company in fiscal 2007. The Company expects sales ratios for defense accounts to remain significant in 2008.

One of the Company’s primary competitors for instrument, switch, oscillator and synthesizer products is Agilent (A). The Company does not attempt to compete "across the board" with them, but it attempts to selectively market its particular strengths and the competitor's perceived limitations. Giga-tronics can also provide pricing flexibility that may not be available with larger and more structured companies.

The Company reported a break even quarter for the Q1 period ended June 30, 2007, which included a one time restructuring charge of $0.02 per share. This compares with a net loss of $0.21 per fully for the same period a year ago. Net sales ramped up 37% to $4,628,000 versus $3,386,000 in the first quarter of fiscal 2007, along with a 6.5% net margin improvement to 42%.

Orders improved 70% in the first quarter of fiscal 2008 to $4,980,000 from $2,933,000 for the first quarter of fiscal 2007. Current book-to-bill ratio jumped above 1 to 1.08 versus 0.87 a year ago and just 0.72 in the previous 4th quarter. Backlog at quarter end was $8.8 million (approximately $5.9 million is shippable within one year) as compared to $9.9 million (approximately $5.8 million was shippable within one year) at the end of the first quarter of the prior year.

The Company's recent restructing efforts, which were expected in previous quarters, resulted in a consolidation of the ASCOR and Instrument Division operations at the facility in San Ramon, California and provided a 10% headcount reduction.

According to President and CEO, John Regazzi, "Many of these restructuring efforts have helped get our expenses in line with revenues. In addition, the restructuring and consolidation at our San Ramon facility in April has resulted in better product development efficiencies and allowed us to take advantage of synergies across our entire product line. Previously, our business units approached their marketing efforts on an individual basis. We are now in a better position to identify and deliver complete solutions for our customers."

"During the restructuring efforts, I have focused my attention here at home. Since the completion of those initiatives in April, I have been traveling extensively and have been actively involved with a number of opportunities. I look forward to some positive results in the future."

"We are currently involved in a potentially major procurement negotiation. The deal is alive and proceeding, but it sometimes takes longer that we would like. We are preparing bid samples for testing by the customer and expect an answer at the end of the calendar year."

Future plans for Giga-tronics include broadening of its product lines and expansion of markets, both by internal development of new products and through the acquisition of other business entities.


Visit 1800blogger to see all of our industry leading blogs