Another Way to Play PlayStation Portable
Pssssssp!
There is a new consumer electronics rage in town, and for once it doesn't come from
Apple Computer
(AAPL) - Get Report
.
It is the PlayStation Portable, or PSP, handheld gaming device built by
Sony
(SNE) - Get Report
. If you didn't run into block-long lines of teens and twentysomethings snaking around your local electronics store last Thursday awaiting its release, then you may have already seen them in action in restaurants, airplanes or neighbors' homes this weekend. I saw a grownup pull one out of his pocket during Sunday brunch in Seattle, dazzling fellow patrons with the machine's gorgeous widescreen color, excellent stereo sound and fast game action.
Sony expected to sell 1 million PSPs in the first few days after its North American launch last week, and appears on track with the forecast. The gaming device, which also plays movie videos on its big 4.3-inch screen and has WiFi networking capabilities, has been well-received by both critics and gamers in Japan and Europe, where it has been on sale since December.
The product is expected to pump up the volume of sagging Sony sales. But we're talking about a multibillion-dollar company where it will take some time to move the profitability dial. The more exciting investment opportunities may be with companies that make components for the device.
Tiny Parts, Big Profits
Component tracking has been a fairly well-trod path for technology investors over the years, as it led to such successful long-term trades as the maker of the central processing unit that powers most personal computers -- a little company called
Intel
(INTC) - Get Report
. And it worked fairly well over the past year with makers of products that go into Apple's iPod devices.
One supplier that could prove a winner if PSPs prosper could be the small-cap U.S. company that provides its brains: chipmaker
Mips Technologies
(MIPS)
. The PSP contains two 32-bit MIPS R4000 chips; one is the CPU, while the other handles media-processing tasks. The company announced second-quarter results in January that showed a 45% increase in revenue; net income swelled to $3.5 million, or 8 cents a share, from $477,000 in the previous year.
The company also makes chips for digital cameras, voice-over-Internet protocol switches, firewall appliances, cable set-top boxes, personal video recorders and the like. Mips' proprietary architecture, originally developed at Stanford University two decades ago, helps device makers put a lot of processing power in tiny, low-power packages -- essentially putting supercomputer-like functionality in consumers' hands.
The shares tripled from August 2004 to February of this year -- running to $13.35 from $3.85 -- but have since backed off to the $11 area. It is not cheap, trading at around 8 times trailing 12-month sales, but that won't deter growth buyers. Fidelity Investments was the largest owner through Dec. 31 last year, with 13% of the outstanding shares. If technology stocks catch a bid in April after their recent swoon, this is surely one that could return to its recent high.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Mips Technologies to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. He also writes a weekly column for CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at
jon.markman@thestreet.com.
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