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Technology Stocks : Semi Equipment Analysis

SOXX 270.83

+1.0%

Nov 21 4:00 PM EST

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To: BWAC who wrote (2858)	4/25/2002 10:32:56 AM
From: The Ox	Read Replies (3) of 95456

hi BWAC, I saw you on the AMCC board and I thought I'd post this response to you on this thread to see if anyone is interested in this type of discussion. Here's one of the formulas I use when trying to put a valuation on a company like AMCC: Hi BWAC, This sector is very sick and I don't see it getting well anytime soon. Cap ex spending in the telecom/datacom market is still being reduced on a quarterly basis and we've seen little to indicate that the sector has truly bottomed out. What worries me most is that the valuations for stocks like AMCC, VTSS and PMCS are still extremely high considering the sector's weakness and forward guidance. Let's compare the 3 stocks using a formula that I have developed. The astrick in this formula is what I call (FV)- franchise value which is taken from the company's balance sheet. I usually don't include inventory, "other assets" and anything else that I don't have complete faith in as an asset which can be converted into cash (good will, etc.). With AMCC, they indicate that total assets on their balance sheet total $1.89 Billion but I use the figure of $1.2 Billion because I won't use "purchased intangibles" in calculating my FV figure. Taking my FV assets and subtracting liabilities I come up with a FV for AMCC at $1.1 billion. I use the FV in the following formula: (Market cap - FV) / current revenues x 4 (adjust revs for 1yr) = MCFVS I use MCFVS like many people use price to sales ratio but I believe that this figure gives me a (mostly) proper adjustment for cash/property and other assets, which the price to sales ratio ignores. AMCC (mc= $6.5 x 300sh = $1950) - (FV = $1100) / (cr = 120) = (MCFVS = 7) VTSS (mc= $6.5 x 200sh = $1300) - (FV = $300) / (cr = 168) = (MCFVS = 6) PMCS (mc= $15.4 x 170sh = $2618) - (FV = $150) / (cr = 205) = (MCFVS = 12) I find it very hard to "pay" for an MCFVS of 7 for a company that had losses from operations of $40 million, $10 more than their revenue for the quarter. I find most "good" companies very attractive when their MCFVS gets below 2. These companies have a ways to go before they get there. Either they are going to have to substantially increase revenues or their stock prices will have to drop significantly. jmo, Michael

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