As long as I'm here waiting for an Altera FPGA to route, I thought
I'd comment on XLNX. Their historical earnings are good, and
their historical growth rate for 1997, is about 23%? Given a
couple of bucks earnings and a 23x PE, they could easily be
worth $30. In fact, I'd buy at these prices easily before going
after ALTR, and I've used specified, programmed all their
lines since three years before they went public back in 1990,
so I am a true customer of theirs. This past summer I bought
a XLNX design system for my home computer, complete with
their keyed software and a VHDL compiler. Lots of fun. Their
new software is better than it used to be, but the Altera tools
are still miles ahead of them in terms of user friendliness. XLNX
has cheaper parts, but their software takes a higher calibre of
engineer to get good use. Incidentally, they are going to see
some competition from TXN and ADI's DSPs, but not for the
important clients. If you are going to go to a gate array, you
have to start with an FPGA instead of a DSP, if you want to
have the cheapest silicon and easiest cost reduction path
when you are done.
Market Size Calculation for Future Years:
Incidentally, their growth rate early on was about 36%, so if you
use the usual differential equation that assumes sales grow to
fill a niche:
dS/dt = k S ( 1 - S/N)
Where
"t" is time, in years,
"S" is Sales per share per year (instantaneous, not yearly, after
inflation)
"k" is growth rate,
"N" is Total market niche, in sales/share/year.
You can easily extract their final market niche from the sales
per share growth data. (This assumes no share buy-back or
other shenanigans. I like to use this method for long term
growth stocks.) You do this by noticing that in the formula,
the decrease in growth rate is proportional to how much of
the market niche is filled up. In other words, companies
grow quickly at first, their growth slows down as they begin
to fill up their market niche, and finally reaches an equilibrium.
So given that the ratio of their current growth rate to their early
growth rate is .23/.36 = .64, if we assume that the early growth
period was a time when S/N was close to zero, but with the
same "k", we have that
.64 = (1 - S/N)
This gives S/N of about .36, so their total market niche is
going to be about $9.55/.36 = $27 per share, given $9.55 per
share sales currently. If they make about 10% in a mature market
(they make more now, don't they? But you can't expect mature
markets to support high margins), this gives earnings of about
$2.65 per share, so I would consider them to be about like GM,
but with a P/E of more like 11 In other words, I wouldn't buy
XLNX, I don't think they're as good a deal as the autos, after
correcting for growth and market niche size. After all, everybody
needs a vehicle, but only engineers need an FPGA.
Of course shorting is another story, not something I've ever
tried. If I had puts on them, I'd probably sell them at this price,
given the time premium decay, and that they have to be seeing
support at these levels.
-- Carl |
