Cheering continues
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08:22am EDT 16-Oct-98 CIBC Oppenheimer (Dale R. Pfau 415-434-5871) VTSS
VTSS: Great Quarter; Strong Growth to Continue P1-3
Part 1 of 3
CIBC Oppenheimer
October 15, 1998
Telecom Infrastructure/Wireless Vitesse Semiconductor
Dale R. Pfau (415) 434-5871 Great Quarter; Strong Growth to
Lior Bregman (212) 667-7045 Continue
Earl Lum (415) 434-5877
Investment Conclusion
We continue to rate the shares of Vitesse a Rating: STRONG BUY
Strong Buy with a 12 to 18 month target VTSS-OTC(10/15/98) $24 7/16
price of $45 to $50 per share. 52-week $37 3/16-15 13/16
Shares Out 79 Million
The company reported another record quarter Float 68 Million Shares
with net income of $0.21 per share on Market Cap $1.9 Billion
revenues of $54.1 million. Earnings, gross Div/Yield Nil/Nil
margins, and revenues were all at record Fiscal Year September
levels and above our estimates. ( $0.20 per Book Value $4.25 per Share
share on $53 million.) Consensus was $0.20 FY 1999E ROE 18.6%
per share. LT Debt $0
Preferred Nil
The book to bill was an impressive 1.17 with Com Equity $340 Million
bookings in the telecommunications segment
at 1.22. The company said it has seen
strong demand across all business segments
and sees no difference in the business Earnings per Share Prior Current
climate today compared with 1 year ago. The FY 1998 $0.65 $0.67
company expects to continue to grow its FY 1999E $0.81 $0.83
telecom business at 65% to 70% in the next FY 2000E $1.19 $1.25
fiscal year.
P/E Ratio
Vitesse continues to have the most FY 1998 37.6X 36.5X
strategically significant technology and FY 1999E 30.2X 29.4X
market position of any company that we know. FY 2000E 20.5X 19.5X
We believe that improving market share,
technical superiority, and dramatically
decreasing costs will keep Vitesse well
ahead of any potential competition in an
extraordinary growth segment. Company Description:
Vitesse designs, develops,
We are raising our estimate for FY1999 to manufactures and markets digital
$0.83 per share on revenues of $276 million gallium arsenide integrated
compared with our prior estimate of $0.81 circuits. It's products are
per share on revenues of $262 million. We used in the high-performance
note that the tax rate for fiscal 1999 is telecommunications,
35% compared to a tax rate of 20% in FY1998. datacommunications, test and
For FY2000 our new estimate is $1.25 per instrumentation markets.
share on revenues of $417 million compared
with our prior estimate of $1.19 on revenues
of $395 million.
Reports Record Fourth Quarter Earnings of $0.21 per Share and Revenues of
$54.1 Million
Vitesse Semiconductor reported record fourth quarter (September) net income of
$0.21 per share ($16.5 million) on record revenues of $54.1 million vs. net
income of $0.13 per share ($10.1 million) and revenues of $30.8 million one
year ago. We had estimated earnings of $0.20 per share on revenues of $53
million; the street consensus was $0.20 per share.
Revenues for fiscal 1998 were $175.1 million, an increase of 67% over $104.8
million for fiscal 1997. Net income for fiscal 1998 was $0.67 per share
($52.9 million) vs. $0.44 per share ($32.9 million) for fiscal 1997.
On a sequential basis, revenues increased 17.4%, the thirteenth consecutive
quarter of sequential revenue growth of 10% or more.
Exhibit 1. Vitesse Sequential Revenue Growth Model
Source: Company Data
Product Revenues
Revenues for the fiscal year in Telecom was $85 million; Datacom was $45.5
million and Test Equipment was $43.3 million. In the future. the company will
discontinue reporting revenues and bookings by Telecom and Datacom and will
combine these two segments into Communications. We have been expecting this
would happen because of the accelerating convergence of the two segments, and
the difficulty the company has in distinguishing between the two. Note that
datacom showed the strongest growth in the past year, while ATE showed
surprising strength.
Revenues by geographical location for fiscal 1998 were as follows:
North America 80%
Europe 10%
Japan 10%
Exhibit 2. Vitesse Semiconductor Product Revenue Model
Source: Company Data
Exhibit 3. Vitesse Product Revenues by Quarter
Source: Company Data
Exhibit 4. Vitesse Product Bookings by Quarter
Source: Company Data
Reports book-to-bill of 1.17; 1.22 in communications
Total bookings for the quarter were $63.5 million for delivery for the next
six months. This would have been a book to bill of 1.2 if the company had
come at our revenue estimate of $53 million. Bookings increased 9.5% from the
prior quarter bookings and represents the fourteenth consecutive quarter in
which the book-to-bill ratio was 1.15:1 or higher. The book-to-bill ratio for
telecommunications segment was 1.22, data communications was 1.22 and test
equipment was 1.07 for the quarter. Telecom bookings were $31.8 million (50%
of total), datacom bookings were $18.3 million (29%) and test equipment
bookings were $13.5 million (21%) vs. $26.7 million, $17.4 million and $13.7
million, respectively, for the prior quarter. The backlog at the end of the
fourth quarter was at $102.5 million, an increase of 10% over the backlog of
$93 million reported at the end of the third quarter. We believe that $30
million of the current backlog is for the Test Equipment segment.
Datacom
Datacommunications was the fastest growing segment over the past year and
include products for fiber channel, gigabit ethernet, and ATM. We believe
that fiber channel is now less than half of the revenues in this segment. We
also believe that the company is beginning to supply significant quantities of
OC-48 products to traditionally datacom customers This is one of the reasons
the company is finding it difficult to differentiate between datacom and
telecom. The company is also supplying products to contract board
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