According to earnings rankings by Bloomberg, the chipmaker scores higher than any other company in the Standard & Poor’s 500 Index. The analysis gave equal weight to five variables, including profit margin and return on invested capital.
Linear, which makes semiconductors for industrial equipment and luxury cars, ranked above Microsoft Corp. (MSFT) and Apple -- two companies with market valuations that are 30 to 50 times larger. The chipmaker, whose customers include General Electric Co. and Bayerische Motoren Werke AG’s BMW, has become profitable by avoiding commodity consumer products and focusing instead on industrial electronics, said Uche Orji, an analyst at UBS AG.
“Because it takes five to 10 years to design products for industrial users, not many companies are willing to take the risk and stay so focused,” Orji said.
Chips sold to industrial customers command a profit margin of more than 75 percent, compared with 50 percent for the consumer-electronics market, he said. While industrial buyers account for 10 percent to 15 percent of the total semiconductor industry, they make up 50 percent of Linear’s sales, Orji said.
“Ninety-eight percent of Linear Technology’s products are proprietary ones, which means clients can’t get it from someone else,” said Tore Svanberg, an analyst with Stifel Nicolaus & Co. “Over the years the company has built up the best engineer team in the industry, which develops better products than others.”
Even so, Linear’s profit hasn’t translated into stock gains -- or many endorsements from analysts. Shares of the Milpitas, California-based company, which has a market value of $7 billion, have tumbled 13 percent this year before today. That’s worse than the S&P 500, which has fallen 4.9 percent in 2011.
Linear fell 3 cents to close at $30.22 today. The stock is projected to climb 9 percent over the next year, according to the average estimate of analysts surveyed by Bloomberg. Only seven of the 22 analysts recommend buying shares.
Shares of Microsoft, meanwhile, are forecast to climb 19 percent over the same period, with an estimated gain of 26 percent for Apple.
Linear’s “stock is cheap,” said Manish Gupta, an assistant vice president at First Eagle Investment Management LLC, the company’s seventh-biggest investor with 7.36 million shares as of June 30. “People are just scared about how bad the economy could be.”
To contact the reporter on this story: Xu Wang in New York at Xwang206@bloomberg.net
To contact the editor responsible for this story: Tom Giles at email@example.com