ESS Technology (NDAQ:ESST) announced yesterday that it hired Neeham & Co. to help it evaluate strategic alternatives, which could include a total liquidation of the company. The move follows demands made by investment firm B. Riley & Co. that the company sell off its remaining businesses, sell its investment and real estate assets and return the proceeds to shareholders.

ESS Technology has struggled amid rising competition from chip designers in Taiwan and China along with increased pressure from larger rivals who have the ability to package technology similar to ESS' with complementary components. The semiconductor company has experienced eleven straight quarters of losses and is expected to lose money for the rest of 2007. This poor operating history combined with the company's small size caused concern among investors.

Last year, the company addressed these issuing in a broad restructuring effort aimed at curbing its operating expenses. These efforts resulted in the sale of its high-definition Blu-Ray DVD chip business and the closing of its camera phone business along with a 67% cut in their workforce. In the end, they were able to half their operating expenses and improve their bottom line; however, there is still a lot of concern as to the viability of any turnaround effort.

ESS Technology is currently undervalued on an asset basis; however, increased spending with no profitability in sight has kept most investors rather skeptical. Consequently, the new effort to explore strategic alternatives may be the only way the company can unlock significant value in the near-term. This makes ESST one worth watching!

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