There could be changes in store for Tustin-based Cherokee International Corp.
A New York-based investment fund recently took an 11.3% stake in Cherokee, saying it believes the electronics company is undervalued. In a filing with the Securities and Exchange Commission, investor Steel Partners said it might buy more of Cherokee.
You know when an investment fund talks about taking an increased interest in a company, things aren’t likely to stay the same.
Steel said as much in a filing with the SEC. It said it could seek changes to Cherokee’s board, capitalization, ownership or operations, and even short sell or hedge the company’s shares.
Cherokee, a maker of power supplies for computers and other electronics, has had problems lately.
In May, the company reported that sales in the first quarter fell 13% to $32 million. Net income fell more than 70% to $600,000, short of what analysts were expecting.
It blamed lower than expected demand for its data communications products and delays in material deliveries, among other things.
One analyst has called for the company to sell. Michael Walker of Credit Suisse First Boston in New York downgraded the stock from “neutral” to “underperform.”
In a research note, he said Cherokee has been losing sales from its top customer, Nortel Networks Corp., and that the company is losing market share elsewhere.
“We believe (Cherokee’s) best strategic option at this point is to find a buyer,either a competitor or a larger supply chain company seeking to vertically integrate,” he wrote.
Cherokee was one of Orange County’s biggest initial public offerings last year. The company raised $110 million in its stock debut in early 2004. Cherokee used the proceeds largely to pay back company debt.
Even so, the company has had a rough time on Wall Street, with shares falling more than two-thirds in the past year to a recent market value of $90 million.
Cherokee was hit especially hard in October after warning that sales and earnings would be lower than expected in the third quarter. The company blamed weakness in sales to Nortel.
Western Digital Settles
Lake Forest-based Western Digital Corp. recently agreed to settle a patent-infringement suit with Papst Licensing GMBH & Co. for $24 million.
The agreement is set to bring a charge of $19 million for the quarter ended July 1, Western Digital said in a filing with the SEC.
Papst agreed to drop its lawsuit, and release “all past, present, and future claims” alleging infringement by Western Digital of Papst patents, according to the filing.
It’s a good development for the disk drive maker, which is battling something of a slowdown in drive sales right now.
In June, some Wall Street analysts issued research notes critical of Western Digital following checks of buyers and resellers of drives that indicated a price war for the computer components.
The average desktop drives had fallen 5% to 10%, said Merrill Lynch & Co. in one note. Another analyst with Piper Jaffray & Co. wrote that Western Digital could face higher operating expenses as it tried to keep pace with Seagate Technology and Maxtor Corp.
Ingram’s Home Electronics Buy
Santa Ana-based Ingram Micro Inc. long has made a name for itself in big corporate computing. Now the company wants a piece of the booming home electronics market.
The company made a foray recently when it said it planned to buy parts of Hollywood, Fla.-based Avad LLC in a bid to tap the home electronics market.
It’s no small buy either. Ingram is paying $120 million to buy Avad. It will pay another $80 million in the next three years if sales and profit targets are met.
Avad has 280 workers and posted sales of $200 million last year. It serves about 8,000 dealers through 28 facilities. Avad is an alliance of 12 companies that share showrooms, distribution centers and training operations.
Companies that use its facilities include electronics makers Fujitsu Ltd., Bose Corp., Sharp Corp., Samsung Electronics Co. and Niles Audio Corp.
“This acquisition accelerates our consumer electronics initiative and provides another key platform for growth,” Ingram Chief Executive Greg Spierkel said.
Last year Ingram launched a consumer electronics division to tap the growing market for digital TVs and other home entertainment products.
The Avad deal is expected to close this week. Ingram said it should boost earnings as early as this year. Ingram said it is not picking up Avad’s cash, long-term debt or other money owed in the deal.
Emulex Supplying Sun Micro
Add this to Costa Mesa-based Emulex Corp.’s growing resume of wins,it added Palo Alto-based Sun Microsystems Inc. as a buyer of its mainstay host bus adapters.
Host bus adapters are cards that sit inside a server and allow it to link up to storage area networks. With approximately 80% of its sales in such gear-and server sales booming,Emulex has posted strong results in the past few quarters.
There was no value put on the deal, but it stands to strengthen what already is a booming business for Emulex.
