Long-term strategy finally turns a profit.

Long-term strategy finally turns a profit

International Rectifier Corp., an El Segundo-based semiconductor manufacturer that for the past few years has rebelled against Wall Street's quarterly reward system, has begun to see profits from its long-term, Japanese-like strategy.

IR recently reported its second consecutive profitable quarter in four years since it invested $100 million in a Riverside area plant that makes chips for IBM, GM Delco, Hughes and other huge clients.

Now its business is viable and moving in the right direction, said analyst Daniel L. Klesken of Prudential Bache Securities.

"They've invested heavily in the R&D side - I visited the facility and it is impressive - and it's beginning to pay off," said Klesken. "What they needed all along was higher revenues, which is what's happening now."

International Rectifier, the only chip manufacturer based in the county, has positioned itself well globally, analysts say. It has subsidiaries in Japan, Singapore and Europe, and manufacturing sites in Canada, Mexico, England and Italy. Some 50 percent of its revenues come from sales to customers outside the United States.

For the third quarter ended March 31, the company reported a profit of $525,000, or 5 cents a share on 21 percent higher sales of $61.3 million vs. a loss of $3.5 million, or 31 cents a share, on revenues of $48.23 million. Its stock reacted favorably to the report, closing up 12.5 cents to $8.75 a share.

The turnaround news comes soon after a favorable legal judgment that protected the company's patents on its crown-jewel product line, power MOSFETs, which are advanced technology power transistor chips. Three Japanese giants, Hitachi, Toshiba, Matsushita, and one sizable American company, Unitrode, have royalty-bearing license agreements under the MOSFET patents. Industrywide, MOSFETs represent a 27 percent market share of a $2 billion market at year-end 1989, compared to an 18 percent share in 1988, according to industry reports.

Four years ago, International Rectifier filed suit against Siliconix, a $129 million (sales) Santa Clara-based chip company, for infringing on five patents for power MOSFETs. Three weeks ago, a U.S. District Court in Los Angeles ruled in favor of International Rectifier. It has yet to determine the amount of damages Siliconix will have to pay, however, and since Siliconix immediately filed for Chapter 11 bankruptcy, the judgment "may not be an immediate windfall," said Klesken.

Also in International Rectifier's favor is the end of a three-quarter semiconductor recession, said Klesken.

"The year 1990 looks like a flat year, but next year should see 15 percent growth and 1991 will be in the high teens," he said. "(International Rectifier) has made it through the shadow of death. Its stock has rebounded nicely from what's been a pretty depressed price."