XCRA - Xcerra Corp

Why - Trying to find an undervalued stock with high growth potential. Company must be financially stable. Company must be poised to dominant its sector.

Bottom Line of Analysis: Whereas the data indicate that XCRA is financially healthy, well managed, and growing steadily, the rate of potential growth does not seem to meet the “Saul critieria”. Although I think the company is poised for steady growth, I do not think that XCRA currently is a “game changer” and do not think that we are going to see this stock blow up in the manner of other stock picks for this board.

One may want to look at the data and take a small position. I am not going to take a position at this time, as my portfolio currently is overburdened with small positions (that I’m working to eliminate). However, I am going to continue to watch this stock and will update if anything striking happens.

(I am going ahead with this post, because this is my first time trying to analyze a stock. I’ve punted on several before this one and decided to attempt to take this analysis all the way through, using the knowledge base, in an effort to learn. I would value feedback on what I’ve missed, where I’ve gone wrong, etc. so that I can become a helpful, contributing member to this board.)

What - XCRA is in the IT Sector in the Semiconductors and Semiconductor Equipment Industry. Its main line of business is Semiconductor Test Solutions (STS). Its smaller, related line of business is Electronics Manufacturing Solutions (EMS). The STS segment supplies semiconductor testers, test handlers, device contactors and associated services. The EMS segment offers products and services for printed circuit board (PCB) and PCB Assembly (PCBA) test as well as interconnect components for electronic manufacturing.

Basically semiconductor designers and electronics manufacturers use the equipment that XCRA makes to test their devices as the devices are being manufactured/assembled. Every individual who makes an electronic device (PCs, mobile internet equipment, broadband access products, mobile phones, tablets, TVs, videogame systems, digital cameras, auto electronics, etc.) needs this type of test equipment to ensure that the product will work as designed (is designed and assembled properly).

Given the world’s dependence on electronic devices, this seems like a good industry to investigate. However, it appears (from information provided the 2017 Annual Report) that there is a great deal of competition in this industry and that there is inertia on the part of customers to switch test equipment vendors.

`Gross Profit ($K)

2016 32.1 29.7 35.9 42.2
2017 34.4 34.8 46.3 57.6
2018 59.4 50.5 52.6 

Net Sales ($K)

2016 78.4 72.3 82.2 91.2 
2017 80.0 80.1 103.6 126.9
2018 120.3 110.3 115.7 

GAAP Net Income ($K)

2016 (1.7) 2.5 3.2 7.1
2017 0.02 2.6 7.5 12.4 
2018 17.5 7.8 11.9 

GAAP Net Income Per Diluted Share ($)

2016 (0.03) 0.05 0.06 0.13
2017 0.00 0.05 0.14 0.23
2018 0.32 0.14 0.21 

Cash//Total Assets//Total Liabilities ($K) (ND=no data)

2016 64.2 75.2 75.7 ND // 366.2 368.9 379.8 ND // 62.0 68.8 72.2 ND 
2017 75.6 82.5 92.3 ND // 290.4 376.6 398.8 ND // 61.1 64.5 77.7 ND
2018 104.4 118.2 127.8 // 359 433.4 458.0 // 84.1 72.3 84.5 

Stockholder Equity ($K)

2016 269.7 266.7 275.1 ND
2017 281.3 283.9 293.6 ND
2018 332.3 347.8 360.3 

High Stock Price ($)

2016 7.26 7.36 7.60 6.22
2017 6.22 7.99 10.01 10.00
2018 10.15 12.08 14.49 


Language in the financial reports indicate that Q2 (Nov-Jan) each year is a seasonal low in this industry.

To the best of my [limited] understanding gross profit and net sales are growing steadily, cash and cash flow are healthy (can you tell that from these data?), assets vs. liabilities paint a healthy financial picture, stockholder equity is growing steadily (I don’t think I truly understand the implications of that value nor why I pulled those numbers). I added the high share price for the associated quarter. To me, it’s an inexpensive stock for a financially healthy company in a valuable market sector.

The trend for GAAP vs. non-GAAP was the same. Therefore, I punted the non-GAAP numbers (but in re-reading the knowledge base, I should have punted the GAAP numbers. Sorry.)

The 2017 Annual Report revealed a few tidbits of interest:

• A unique company feature is “total test cell capability”. XCRA is the “only supplier capable of providing a total test cell solution”. Historically customers have had to source disparate test products from multiple, third-party providers to create their own test solution for whatever electronics product they are making.

• In Dec 2013 XCRA acquired Multitest and Everett Charles Technologies which doubled the company size and addressable market.

• In Nov 2015 (which is Q2 2016 in the XCRA fiscal year), XCRA sold their “semiconductor test interface board business” to a Chinese company.

• In April 2017 (Q3 2017) XCRA merged with two Chinese (Unic Capital Management Co, Ltd and China Integrated Circuit Industry Investment Fund Ltd) and one US (Unic Acquisition Corp) company.

• Started in 1976 as LTX Corp. In 2008 merged with Credence Systems Corp to become LTX-Credence. Following acquisition of Multitest and ECT businesses changed named to Xcerra Corp in May 2014.

• HQ is in Norwood, MA, USA. Manufacturing and development facilities in CA, Germany, China, Singapore, Malaysia, Philippines, Taiwan. Sales and service facilities across the world to support customer base.

• International sales accounted for 82% of revenue in FY17 and FY16. Also rely on non-US suppliers for several components. Final assembly manufacturing is in Malaysia.

• Main competitors: Advantest Corporation, Teradyne, Inc, Johnstech, Microcraft, Cohu, Inc., SPEA, Shenzhen Mason Electronics Co, Ltd., Bojay, OXO, Sanmina, Interconnect Devices, Inc., QA Technology, and Ingun.

• CEO (David Tacelli) is highly experienced (imo) in the industry. He joined in 1988 and rose through the ranks. He became CEO in 2005.

• Despite all of these positive-sounding bullets, this is an actual quote from the 2017 annual report, “Our market is highly competitive, and we have limited resources to compete.” Huh? (This is my first time reading an annual report. Are they usually this honest?)

The 2018 quarterly reports (Q1, Q2, and Q3) are interesting. The data above show the growth. No conference call nor outlook for future financial results were provided in Q1 due to an acquisition of Hubei Xinyan Equity Investment Partnership. Likewise in Q3 the same occurred due to an acquisition of Cohu, Inc (which was listed as a major competitor in the 2017 Annual Report).

My take is that since there is inertia in customers switching vendors in this industry, XCRA is acquiring new customers by making acquisitions (buying out competitors). They are financially healthy enough (I think) to do so.

Q2 2018 results (the seasonally slow quarter) had sales up 40% compared to Q2 2017.

Final info gleaned that may be of use for looking at companies in this sector:

Three primary characteristics of this industry drive the demand for XCRA products: 1.) Increases in unit production of semiconductor devices and PCBs; 2.) Increases in complexity of semiconductor devices and PCBs used in electronic products; 3.) Emergence of next-gen electronic products requiring new semiconductor and PCB technologies

Since all of those three things seem to be happening minute-by-minute in our world, this may be an interesting sector/industry. Not sure.


COHU will buy XCRA and the deal will close in early Q4. The deal got approved yesterday by COHU and XCRA shareholders and they got regulatory approval earlier, so this is a done deal. XCRA’s CEO and CFO will retire when the deal is closed.