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>>But Vimicro and Saifun specialize in different niches of the semiconductor industry. Saifun has developed and patented a new memory technology that other semiconductor manufacturers use, and derives most of its revenue from licensing fees, not from designing or manufacturing chips. That gives it a buffer from the normal semiconductor industry trend of competitors rolling out lower-priced copies of its technology.<<

Vimicro Stock Falls in First Day of IPO
Tuesday November 15, 3:45 pm ET
Vimicro International Stock Falls in First Day of Trading As Public Stock


WASHINGTON (AP) -- Vimicro International Corp., a Chinese company that makes processors for digital cameras, had a poor reception from investors on Tuesday, the company's first day of trading as a public stock.

The stock opened at $10.01 share on the Nasdaq Stock Market, up a cent from its offering price, and declined from there.

The American Depositary Receipts fell to $8.90 in afternoon trading.

Vimicro sold 8.7 million ADRs at a price below the expected per-share price range of $11 to $13 set by underwriter Morgan Stanley.

Vimicro's offering follows the strong debut last week of Saifun Semiconductors Ltd., an Israeli company that specializes in memory technology. Saifun gained 50 percent on its first day of trading and was at $33.43 in afternoon trading Tuesday on the Nasdaq, up 42 percent from its IPO price of $23.50.

Vimicro and Saifun only became profitable in recent years. Vimicro, which has been in operation since 1999, delivered a net profit in 2003 and again in the first six months of 2005. During the first half of 2005, it reported net income of $5.26 million, compared with a loss of $8.18 million in the same period of 2004.

But Vimicro and Saifun specialize in different niches of the semiconductor industry. Saifun has developed and patented a new memory technology that other semiconductor manufacturers use, and derives most of its revenue from licensing fees, not from designing or manufacturing chips. That gives it a buffer from the normal semiconductor industry trend of competitors rolling out lower-priced copies of its technology.

Vimicro is a more mainstream semiconductor designer, selling its chip designs to consumer electronics manufacturers, and the fact that its patents are all in China -- a country not known for rigorous enforcement of intellectual property rights -- exposes it far more to the competitive pressures that buffet the industry.

Vimicro's IPO prospectus also reveals worrisome accounting issues that play into Americans' fears about Chinese companies: A review revealed a lack of personnel with U.S. GAAP reporting experience, and the company's use of manual accounting systems didn't allow for timely recording of transactions. As a result, the company had to restate its financial statements for 2001 to 2003.

Although Vimicro has hired consultants and more people with accounting experience to beef up its internal controls, it warns in its prospectus that it can't assure investors that it will fix its accounting problems, which are defined as material weaknesses.

Vimicro's poor reception doesn't bode well for the offering of another Chinese semiconductor stock later this week, Actions Semiconductor Co.

Although Actions doesn't have the accounting problems that Vimicro reported in its prospectus, its focus is also in a highly competitive market, digital music player chip designs. Actions also faces a patent infringement case from U.S. competitor Sigmatel Inc. that focuses on its chip designs. The outcome of the case -- which could result in Actions being permanently banned from selling its chips into the U.S. market -- is impossible to predict, the company says in its prospectus.


http://biz.yahoo.com/ap/051115/vimicro_ipo.html?.v=2

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