Value Find: Centillium Communications Inc.

Continued insider buying and the sale of a money-losing legacy business suggest shares in this microcap tech company may have finally found a bottom and could be poised for a sharp rebound.

Fremont, Calif-based Centillium Communications Inc. (Nasdaq: CTLM) has a long and undistinguished history as a public company. In fact, since being founded in 1997, Centillium has done only one thing fabulously well — lose money. At last count, the $32 million market capitalization microcap had racked up an accumulated loss of $229 million since inception.

Poor stock performance has followed the growing losses. The stock price has been more than cut in half over the past year, declining from $2 a share to a measly $0.71. Looking back at the past five years, the stock price has declined an even uglier 90%. After posting revenue of $160 million in 2001, which marked the end of the tech boom, revenue has declined every year since. For 2007, Centillium posted revenue of $39.2 million, compared with $64.6 million a year ago.

Given the company’s steady losses and eroding revenue, Centillium would generally be a name   to avoid and let wallow in its own misery. However, with a balance sheet still stuffed with cash, a lowly valuation and activist investors circling the stock, Centillium deserves one final look. Centillium ended 2007 with $35 million in net cash on hand. This was before the small semiconductor solutions provider sold its badly declining digital subscriber line (DSL) solutions business to a rival for a net gain of $8 million in cash. This transaction closed in mid-February. With this in mind, Centillium should have ended March with around $44 million in cash.

The fact that Centillium sports a negative enterprise value, in the sense of market cap plus debt minus cash, is in part due to the company’s continued losses, which each quarter eat away at its cash balance. For example, for the fourth quarter, Centillium posted revenue of $8.6 million, down from $10 million a year earlier, and a non-GAAP loss of $4.2 million, or $0.06 a share, compared with a year-ago loss of $6 million, or $0.15 a share. Total cash on hand declined sequentially by $4.9 million to $36.8 million. Centillium also has $1.5 million in short-term debt.

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