Having few competitors is a mixed blessing in technology. In the case of static random access memory (SRAM), GSI Technology (Nasdaq:GSIT) is one of the few companies still involved in the industry, but investors ought to be cautious in committing to a market that companies like Samsung and Sony (NYSE:SNE) chose to exit. While there is still growth potential here, particularly if carrier demand rebounds, there may not be enough growth to really get the Street excited about this name again.

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High Performance, but a Small Market
SRAM offers several technical and performance advantages over DRAM when it comes to applications like routers, switches and base stations, and these chips have found their way into many high-performance applications in networking, telecom, military and medical markets. Unfortunately, as alternatives have improved, the addressable market has shrunk and now arguably stands below $1 billion.

That's not a major threat to the SRAM market leader, Cypress Semiconductor (NYSE:CY), as Cypress addresses many other markets as well. For GSI, though, it's definitely more of a challenge.

GSI has chosen to focus on higher-end products and that has allowed the company to see significantly higher ASPs over the years. That, in turn, has allowed the company to grow from a bit player in the early 2000s to a company with something close to 10% overall market share and major customers, like Cisco (Nasdaq:CSCO).

Can Networking Grow Again?
GSI has done a good job of winning slots in the networking industry, but Wall Street is not exactly comfortable with the long-term growth rates that Cisco or Juniper (Nasdaq:JNPR) can expect from routing and switching. At the same time, companies like Cisco and Alcatel-Lucent (NYSE:ALU) have been struggling more recently to overcome sluggish carrier demand, despite ongoing bandwidth demand and pressures on wireless networks.

Eventually some of this growth will re-materialize; there are simply too many carriers that have to upgrade and build out 4G networks for equipment demand to stay weak indefinitely. Assuming that companies like Alcatel and Cisco can drive better orders from carriers, that should filter through to GSI and perhaps offer some upside to estimates.

That said, solid long-term growth likely rests on the company's ability to broaden its capabilities and addressable markets. If current analyst estimates prove accurate, GSI will exit fiscal 2013 with two straight years of annual revenue declines and that simply won't cut it in a tech market where many institutional investors demand double-digit growth before even considering a stock. Likewise, the company's ability to translate revenue into free cash flow has proven to be quite erratic and that ups the risk for investors. (For related reading, see Free Cash Flow: Free, But Not Always Easy.)

The Bottom Line
GSI remains a company narrowly focused on a market that seems to be shrinking. The company's focus on high-end products is logical, but institutional tech investors need to be able to dream big before making major commitments and I'm not sure the operating plan here allows for that. That said, there are some pretty smart institutions in this stock and that cannot be ignored.

If GSI can find a path to sustainable mid-to-high single-digit full-cycle revenue growth and a free cash flow margin in the mid-to-high teens, these shares are quite likely undervalued today. What's more, while many analysts seem willing to predict a rebound in carrier spending, little of that optimism seems to have filtered through to this stock and this could be an over-looked play on that recovery.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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