Here is the Barron's article :
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"SIZING UP SMALL CAPS" By Rhonda Brammer (97/11/10)
Except by the most liberal of definitions (more liberal than ours),
Milpitas, California-based with a stock-market value of
about $3 billion -- is not a small-cap. But it's getting there.
Not long ago, LSI's market value was
nearly $9 billion. Shares have fallen from 62 1/2 to 22 and change.
Third-quarter earnings were weak and last month LSI forecast a lousy fourthquarter.
LSI is the global leader in application-specific integrated circuits
(ASICs) that go into everything from Sun workstations to Sony's
Playstations. "When the hockey player skates over the blue line on a
Playstation," explains Black, "an LSI ASIC is in there." In fact, Sony
contributes about 20% of LSI's sales, and there's always the worry, Black readily admits, that the popular Playstations go the way of Cabbage Patch Kids and Tickle Me Elmo dolls.
LSI's current troubles, however, are broad-based. Orders are slowing and prices softening, even as the company bears the costs of a huge new fabrication plant to come on stream mid-1998. For all of '97, LSI will report about $1.10 a share, Black figures, roughly flat with last year's $1.12 but sharply down from the $1.86 it earned in '95. He's looking for $1.35-$1.40 in '98.
But why he's buying LSI shares and believes the stock could be a "home
run" are prospects for '99: The new facility could boost sales to $3
billion from about $1.2 billion currently, and LSI could earn $2.10 a
share. "And that's conservative," he insists, noting his model assumes
operating margins of 22%, far below the 26.5% at the last peak. "Once you
start filling the fab, it's like an airline -- you fill those incremental
seats and it all goes to the bottom line."
But what if LSI doesn't fill the plant? If you had a worldwide slump --
"if the stock tanked" -- it'd sell around 14-15, Black reckons. Book is $11
and LSI has more cash than debt.
On the upside, if in 12 to 18 months Wall Street sees earnings of
$2-plus for '99, LSI could, Black feels, double from here.
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Mang |
