Actions Semiconductor Co. (ACTS)

Based in Zhuhai, China, Actions Semiconductor Co., Ltd., operates as a fabless semiconductor company in the People's Republic of China. The company designs, develops, and markets integrated platform solutions, including system-on-a-chips (SoCs), firmware, software development tools, and reference designs for manufacturers of portable media players. It offers SoCs, which are integrated circuits that incorporate digital signal processor, a micro controller unit, embedded memory, codec, a power management unit, and other components. The company's SoCs products also comprise on-chip memory, controllers for color liquid crystal display, and analog components, including digital-to-analog converters, phase lock loops, and USB transceivers. It also offers solution development kits, which include the embedded firmware code, software tools, and documentation to utilize SoCs in portable media players. The company's firmware utilizes an embedded structure design with interface that allows customers to pick and choose functionalities and add new device drivers. Its manufacturing software tools also allow its customers in the mass production of products based on turnkey process. Actions Semiconductor Co. sells its products in the People's Republic of China and internationally through distribution arrangements and direct sales force to value-added distributors, contract manufacturers, and brand owners. The company was founded in 2001. It was formerly known as Cristo Capital, Inc. and changed its name to Actions Semiconductor Co., Ltd. in 2005. The company is headquartered in Zhuhai, the People's Republic of China.

ASP Erosion

The unit growth forecasted for Semiconductors earlier in the year are still solid. Average selling prices are a different story. Sharp declines in average selling prices (ASPs) for microchips in several key market segments (microprocessors, DRAMs, and NAND flash) will contribute to slower growth in worldwide sales of semiconductors in 2007. The Semiconductor Industry Association (SIA) lowered its forecast for 2007 global microchip sales growth from 10 percent to 1.8 percent despite solid fundamentals and continued strong unit growth in major end markets. The new SIA forecast projects total sales of $252 billion in 2007, rising to $306 billion in 2010. As the table below shows, ACTS has seen its average selling prices cut in half.

For the year ended December 31,

2002

2003

2004

2005

2006

(thousand, except average selling price)

Operating Data:

Sales of SoCs for MP3 players

US$

US$

3,285

US$

54,069

US$

146,619

US$

168,907

Units shipped

744

12,228

48,866

76,059

Average selling price

US$

US$

4.40

US$

4.40

US$

3.00

US$

2.22

High margin help is on the way.

On July 17, 2006 Actions Semiconductor announced the launch of its new Series 7500 products and the introduction of its Series 13 product family. Actions' Series 7500 products are targeted at the value segment of the personal media player market. The Series 7500 products feature 0.18 micron process technology and offer customers optimized power consumption and enhanced CD-quality audio capability at a competitive price. Shipping of the Series 7500 products is expected to commence in August.

Actions' Series 13 product family is designed to bring high-end functionality to the personal media player mass market by providing a solution with advanced features at highly compelling price points, thereby offering customers a strong functionality to price ratio. ACTS Series 13 products feature dual-core architecture with 32bit MIPS+24 bit DSP, a flexible Linux operating system and full audio and video functionality. Series 13 products are compatible with MP3, ADPCM, WMA, OGG, APE, Audible, and WAV audio formats, and feature video playing and recording capabilities that support WMV, AMV, MPEG-4 SP, and MJPEG QVGA 30fp formats. The Series 13 products are compatible with Windows Media Digital Rights Management 10 (WMDRM10) and PlaysForSure.

Settling with SigmaTel

On June 20, 2007 ACTS announced that it has settled all outstanding litigation worldwide with SigmaTel, Inc. Under terms of the settlement agreement, all outstanding claims and counterclaims in the lawsuits in which the two companies have been engaged will be dismissed with prejudice. Both companies also agreed to not pursue possible third party IP infringements or new legal actions against each other and their respective customers for three years.

Additionally, Actions and SigmaTel entered into a comprehensive cross-license agreement covering patents owned or controlled by either party or its subsidiaries. Consequently, all of Actions' current and future products may now be imported into the U.S. market without restrictions.

The Future

ACTS recent revenue growth has resulted almost exclusively from sales of SoCs for portable media players. The company's future success depends on our ability to develop successful new products in a timely and cost-effective manner.

If market demand shifts rapidly toward portable, multifunctional electronic products such as mobile phones with add-on portable media player functionality and away from stand-alone portable media players, sales of ACTS SoCs for portable media players may decline. The migration and adoption of 3G mobile phone networks may also cause the embedding of portable media player functionality into mobile phones to grow in popularity as 3G technology allows audio, image and video files to be readily downloaded to mobile phones.

ACTS may not be able to compete with SoC providers that target mobile phone manufacturers by combining mobile phone and portable media player functionality into one SoC. There is a possibility the firm may not be able to timely develop and introduce new or enhanced products in a timely and cost-effective manner, keep pace with market trends, or be sure that its products will generate significant revenues. The development of its SoCs and total solutions is highly complex, and successful product development and market acceptance of products depend on a number of factors.

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