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THIRD AVENUE FUNDS'
MARTY WHITMAN ET AL.
(continued from preceding page)
OID: And I gather you view that as a plus?
Jensen: We do - for several reasons: First, I think it is their distinctive competence. Second. it's a higher growth segment by nature of the end markets they serve: i.e., communications (modems and cellular handsets). And, third, I think that they should be able to achieve reasonable margins in that segment. The product cycles and design cycles tend to be a little longer in that segment and not quite as ferocious.
OID: I guess everything's relative.
Whitman: As I recall, C.P. Clare says that they're the big factor on the analog side. They're the king of analog - whatever the heck that is. Isn't that right, Curtis?
Jensen: Yeah. In the markets they serve, they claim to be #1 or #2, although I can't give you an exact figure because it depends on how you measure share - whether you're talking units or dollar volume, how you split up the product category. etc. But they claim to be leaders.
OID: How would you assess the quality of its business and the quality of its management relative to the quality of the other businesses you've told us about and the other players in that industry?
Jensen: Well, C.P. Clare's been in business for about 60 years. So it's not an upstart business by any means. It's run by a guy named Art Buckland who has a lot of his personal wealth in the stock. He became the president of the company in 1993 and is currently president and CEO. And he runs a conservative show.
Whitman: Based on everything I've read and heard, they're well respected - both in terms of their technology and customer satisfaction.
Part of my thesis for C.P. Clare is that its customers on the semiconductor side are companies like Motorola, 3Com, Ericsson and Nokia. Thus, by buying C.P. Clare, you're participating in the growth of those - only without paying for it.
OID: That sounds like a winning combination. But could you tell us the range of prices you haven't paid?
Jensen: I believe that we've paid as little as $7 and as much as $12 for C.P. Clare.
Whitman: And our average cost is up around $9 versus a current market price of about $6.00.
OID: With apologies for asking you to understand abnormal psychology, stocks go down for a reason. What do you think the reason could be here - aside from the current state of the industry?
Whitman: It's probably what the reason usually is: Merrill Lynch, DLJ or some other major broker said the company's earnings outlook for the next six months is poor - and they're probably right. But to us, that's irrelevant.
Jensen: Again, we don't know of any reason. It doesn't look like any of their large shareholders are selling. C.P. Clare was break-even in the latest quarter on an operating basis, although its reported numbers were much worse as a result of having just completed an acquisition and letting some people go.
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