OPNEXT, INC. & VIRAGE LOGIC CORPORATION

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Hello Readers,

Two more weeks and even more murkiness. But, as we said in the last Newsletter, and in others, the bottom of the carnage is getting closer. We are still thinking 6000 to 6500 on the Dow and 1000 to 1200 on the NASDAQ. One average we have not mentioned, lately, is the Russell 2000, the measure of small caps, which, a few days ago , hit a nearly six-year low when it dipped below 400. Last May, only nine months back, the Russell stood at around 750. Pretty sobering stuff, huh? It would be of immense help if people in Washington stop “helping” the situation by throwing money all over the place, but, hey, that’s what they do best.

And we hate to keep on saying this, but, yes, our Current Portfolio keeps getting beat up along with the rest of the market. Unfortunately, many babies are being thrown out with the bath water, to use an old hackneyed phrase.

Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates on companies in the “Endangered List” unless we feel the news to be highly significant.

TomoTherapy (TOMO)(2/20/09). Centre Oscar Lambert installs TOMO’s Hi-Art cancer treatment system.

AuthenTec (AUTH)(2/5/09). Year-over-year numbers not bad, but 4thQT revenues drop and add to losses; balance sheet still looks strong.

SuperGen (SUPG)(2/5/09). To announce FY2008 numbers on March 2, the day we post this Newsletter.

Rewards Network (DINE)(1/20/09). BlackBerry Smartphone users get free restaurant application through DINE. Reports almost 9% sales increase for 2008 and nice income numbers; balance sheet still looks okay.

MakeMusic (MMUS)(1/20/09). Sets earnings call for March 4.

AXT (AXTI)(12/20/08). Recent quarterly numbers disappoint and current quarterly outlook none too rosy; balance sheet still looks strong.

Market Leader (LEDR)(12/20/08). To provide Keller Williams sales professionals with $1000 in Google AdWords advertising. Enters strategic pact with Google as authorized AdWords reseller.

Akeena Solar (AKNS)(10/20/08). Revenue numbers miss on expectations and loss widens and stock takes a drubbing; balance sheet still looks okay. Kaufman Brothers downgrades stock to a “hold”.

SCM Microsystems (SCMM)(10/5/09). Merger with Hirsch Electronics declared effective by SEC.

Lexicon Pharmaceuticals (LXRX)(9/20/08). Recent balance sheet still looks pretty healthy.

Planar Systems (PLNR)(9/20/08). Introduces entry-level version of StereoMirror 3D/Stereoscopic display.

Endeavour Silver (EXK)(9/5/08). Closes CA$14 million private placement of convertibles.

Uranium Energy (UEC)(8/20/08). Announces advances in permitting for the Goliad ISR Project.

Icagen (ICGN)(8/5/08). Sets earnings confab for March 11. Longtime investor cashes out of company, which is what probably drove down the stock.

Energy Focus (EFOI)(6/5/08). Becomes official GSA schedule contractor of energy efficient lighting products for federal stimulus package projects.

Bridgeline Software (BLSW)(6/5/08). National building products developer selects iAPPS Content Manager and iAPPS Analytics. Releases iAPPS 2.5.

Microvision (MVIS)(5/20/08). To release financial results on March 5.

Kopin (KOPN)(4/20/08). Sets earnings call for March 5.

Replidyne (R7Y.BE)(4/5/08). Stock delists from NASDAQ and now trades on the Berlin Exchange. This is now on the “Endangered List”.

Biolase Technology (BLTI)(4/5/08). Launches new Waterlase MD Turbo all-tissue dental laser system.

Rodman & Renshaw (RODM)(3/20/08). Slates earnings call March 9.

Amicas (AMCS)(1/20/08). Company buys smaller rival Emageon for $39 million in cash; some see this as a steal. FY2008 numbers about the same as 2007; balance sheet still looks good.

Move, Inc (MOVE)(1/5/08). Current president stepping down and duties will be assume by CEO. Will present at the Morgan Stanley Technology conference on March 4. Slates earnings call for March 3.

Santarus (SNTS)(11/20/07). Sets earnings call for March 5 and sees preliminary 2008 revenues of $130 million.

Nucryst Pharmaceuticals (NCST)(10/5/07). Recent balance sheet still looks good. Recent 80 cents dividend is factored into the now very low stock price.

XATA Corp (XATA)(9/20/07). Starts shipping enhanced navigation capabilities within its two main fleet operations products.

Radcom (RDCM)(7/20/07). Transforms IMS monitoring methodology.

Pharmacyclics (PCYC)(6/20/07). Receives NASDAQ notification. Closes private placement financing.

Xenonics (XNN)(6/5/07). Gets $1.4 million NightHunter purchase order.

ECtel (ECTX)(5/5/07). Year-over-year revenues increase but 4thQT takes it on the chin and company implements cost cutting programs; balance sheet still looks good. And yes, the stock should be placed on the “Endangered List” at this price, but the company still appears viable and the balance sheet still seems to be in good shape, which is indicative of many of our picks.

TTI Team Telecom (TTIL)(3/5/07). Here is another one like ECtel just above. FY2008 revenues were up over 2007 but 4thQT was dismal; balance sheet still looks good.

Endologix (ELGX)(1/20/07). Year-end and 4thQT revenue numbers look pretty good, as does balance sheet.

AdvanSource Biomaterials (ASB)(12/20/06). Balance sheet weakens. This is now on the “Endangered List”.

HealthStream (HSTM)(10/20/06). Year-end and 4thQT numbers look good; balance sheet still appears viable.

The Inventure Group (SNAK)(3/5/06). Posts record earnings for 2008 as revenues also rise; balance sheet still looks viable, but we would like to see less debt. Roth Capital upgrades the stock to a “buy”.

MIND CTI (MNDO)(2/5/06). FY2008 numbers okay but 4thQT results sag; cash position still looks viable.

RAE Systems (RAE)(10/5/05). Sets earnings call for March 5.

Our picks for this Newsletter are a broad-line semiconductor and a specialized semiconductor, both NASDAQ-listed.

OPNEXT, INC. (NASDAQ: OPXT) – $1.69. Twelve-month hi-low has been $7.11 – $1.29. Based in Eatontown, NJ, with about 425 employees, this broad-line semiconductor has 91.2 million shares outstanding, $364.23 million in total current assets, $432.39 million in total assets, and $108.67 million in total liabilities, of which $24.31 million is long term debt. Institutional ownership is around 17%. Two analysts give the stock a “strong buy”, one a “moderate buy”, and five have it as a “hold”. www.opnext.com

We usually hate too much debt, but the top part of the balance sheet for Opnext, Inc. appears to more than balance out the red ink. The company recently reported a lousy quarter and lowered revenue guidance for the rest of 2009; but we feel the worst news may be behind it and the balance sheet should be able to carry them during these turbulent times.

Founded in 2000, and public for just over two years, Opnext designs and manufactures optical modules and components that transmit and receive data delivered via light in telecommunications and data communications applications. The company offers 10Gbps and 40Gbps transceiver modules, including tunable transceivers; a line of 2.5 Gbps and lower speed SFP transceiver modules; products for product platforms, such as SFP+, 40GbE, 100Gbps, XLMD, and XMD; communications laser diode products that include DFB lasers and EA-DFB lasers; avalanche photodiodes; and photodetectors. It also provides transmit and receive optical modules and components; transport and routers; multi-service switches and access multiplexers; switches and routers; servers; and hubs and switches.

In addition, Opnext offers lasers and infrared LEDs for industrial and commercial markets, which include visible lasers for applications, such as laser printing, industrial barcode scanning, medical imaging, and professional contractor tools; lasers for scientific measurement, night vision, and other infrared applications; and infrared LEDs for sensors used in robotics and other industrial applications. The company serves telecommunications and data communications markets, which include network systems vendors; and companies that design and manufacture laser-based products, including medical and scientific systems, industrial bar code scanners, professional grade construction and surveying tools, gun sights and other security equipment, sensors for robotics and industrial automation, and printing engines for high-speed laser printers and plain paper copiers.

At the end of January, Opnext introduced a red laser diode for use in miniature display applications. The company claims it has excellent color reproducibility because of its high monochromacity and can be built into next generation miniature display systems, including those in PCs and mobile phones.

For the FY ending 3/31/08, revenue was $283.49 million with $17 million in net income. During the first nine months of the current FY, ending 12/31/08, revenue was $234.92 million with $10.74 million in losses. As we said above, the company has lowered expectations for the balance of 2009.

Opnext appears to have a pretty widely diverse product mix and, coupled with a decent balance sheet, should be able to make it over the hump.

Our 24-month target for the stock is $3.25 to $3.50.

For more information, contact OPXT’s Doug Dean at 732-544-3212; ddean@opnext.com

VIRAGE LOGIC CORPORATION (NASDAQ: VIRL) – $2.70 Twelve-month hi-low has been $7.20 – $2.31. Based in Fremont, CA, with about 400 employees, this specialized semiconductor has 22.8 million shares outstanding, $82.78 million in total current assets, $124.53 million in total assets, little debt, and $17.06 million in total liabilities. Institutional ownership is around 62%. One analyst rates the stock a “moderate buy”. www.viragelogic.com

Virage Logic Corp. is another semiconductor that recently reported a downward quarter, but seems to have the product spread and the balance sheet to weather the current storm.

Founded in 1996, and public for nearly nine years, Virage Logic provides semiconductor intellectual property (IP) and services to more than 350 semiconductor companies worldwide. It also develops and markets embedded memory products. The company offers a range of semiconductor IP, including embedded memories for static random access memory (SRAM) and non-volatile embedded memory (NVM); logic libraries; IP and development infrastructure for embedded test and repair of on-chip memory instances; software development tools used to build memory compilers, and double data rate (DDR) memory controllers, physical interfaces (PHYs) and delay locked loops (DLLs).

Virage Logic believes that its highly differentiated product portfolio provides higher performance, lower power, higher density and optimal yield to foundries, integrated device manufacturers (IDMs) and fabless customers. The company uses its FirstPass-Silicon Characterization Lab for certain products that it claims ensure high quality and reliable high IP across a wide range of foundries and process technologies. Some of its customers include Broadcom, Cisco, Cypress, Freescale, ADI, Altera, AMCC, AMD, Avago, Fujitsu, Hitachi, IBM, LSI, NEC, Toshiba, and Panasonic.

In early February, the company was selected as Sharp Corporation’s trusted IP partner for the latest CMOS Image Sensor System-on-Chip. Also, at that time, VIRL extended comprehensive DDR interface IP portfolio with system-validated DDR3 and new low power DDR2.

For FY2008, ending 9/30/08, revenue was $59.33 million with $554,000 in net income. During the 1stQT of the current FY, ending 12/31/08, revenue was $11.34 million with $2.61 million in losses.

We like the product portfolio and the balance sheet, which, as we said, should carry the company through some tough times.

Our 24-month target for the stock is $4.50 to $5.00.

For more information, contact VIRL’s Brian Sereda at 510-360-8017; brian.sereda@viragelogic.com

Look for the March 20, 2009 Newsletter to be posted on 3/16 or 3/17.

Thank you,
George

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