Sadly the shorts are winning and getting the better of ISSI today! However, SG COWEN is bullish as below!
Reprinted -
ISSI/ QUARTER AHEAD OF EXPECTATIONS; STRONG BUY
SG COWEN
Billy/Romaine
26 October, 2000
Integrated Silicon Solutions (ISSI $13 1/8)
Strong Buy (1)
Quarter Ahead Of Expectations
===========================================================================
Quarterly EPS
FY Sep Old EPS New P/E Q1 Q2 Q3 Q4
EPS
1999A ($0.52) ($0.23) ($0.20) ($0.06) ($0.03)
2000E $0.86 $0.89 $0.02 $0.14 $0.32 $0.41
2001E $2.00 6.6 $0.43 $0.48 $0.52 $0.56
===========================================================================
Key Points:
1. ISSI beat our estimate by $0.02 and consensus by $0.04
2. Revenue growth exceeded and profit margins were in line with
expectations
3. Visibility extends about 1® quarters, which is as good as this
business gets
4. Our rating and estimates are unchanged
5. The shares look extremely cheap at current levels
Summary: ISSI reported FQ4 EPS of $0.41 compared to $0.32 last quarter, our
estimate of $0.39 and the consensus estimate of $0.37. Revenue growth was
roughly 30% Q/Q for the third consecutive quarter. Revenue was about 6%
higher than we forecast. We believe that near-term visibility-in this case
into mid-CQ1--for both ISSI and the high performance SRAM market are
excellent. Management guided to 20% Q/Q revenue growth in FQ1. Our sense
is that it can do better. Profit margins in the just reported quarter were
in line with expectations. Management clearly guided to more modest profit
margin expansion in FY01 than we would have expected given the rate of
revenue growth. Some of this was attributed to the ongoing flow through of
wafer cost increases instituted by its foundries earlier this year.
However, our sense is that they were displaying some conservatism,
essentially trading off the unavoidable increase in revenue guidance for
more modest margin expansion and holding EPS guidance in the $1.85-2.05
range it was in. It was obvious on the conference call that some were
concerned by this profit margin guidance and assume it holds some hidden
message. There may well be some pressure on the shares today, though
perhaps the very low PE attached to the shares militates against this. All
of our sources suggest that high-performance SRAM demand is still strong
and ASPs are firm. Our model is not predicated upon rising SRAM ASP.
Improvements in process technology will cause declines in unit costs and
should allow some improvement in gross margins even with a return to
"learning curve" price declines in H2 C2001. The 5-10% of its business in
low power SRAM is experiencing some softness (along with all other cell
phone-oriented components) but it is too small a piece of the business to
matter. Our sense is that ISSI's overall backlog position and incoming
order patterns are very strong. So if there is a hidden agenda in this
margin guidance, our guess is that it is management keeping the bar set low
for itself. We are retaining our $2.00 estimate for FY01. Longer-term we
expect ISSI to continue to gain share of the SRAM market, due to its
positioning in the high growth communications markets, and grow 1®-to-2
times the 15% rate expected of the SRAM market. At less than 7x FY01
estimates the shares are very cheap by historical standards. The stock
market is valuing stocks like ISSI as if a severe cyclical downturn were
imminent. It is our belief that the semiconductor "cycle" has, at least,
another 15 months of expansion ahead of it. If so then the correction that
many of the semiconductor stocks have experienced in the last two quarters
is the classic "mid-cycle correction," not discounting of the next
recession. We are retaining our Strong Buy (1) recommendation. |
