VTSS June quarter earnings preview:
Salomon Smith Barnet
July 1, 1999
Vitesse Semiconductor derives 80% of its sales from broadband
communications applications, including SONET/ATM, Gigabit Ethernet, Fibre Channel, and dense wavelength division multiplexing (DWDM) applications. Lucent is Vitesse's largest customer at roughly 20-25% of sales. Automated test equipment (ATE) component sales account for approximately 20% of Vitesse's sales, with most shipments going to Schlumberger and Teradyne.
Vitesse had an unusual situation among Internet IC suppliers over the last six months as it brought a significant chunk of new capacity on line. As a result, lead times shortened and book-to-bill ratios for the company have fallen. In addition, Lucent has been in the process of out-sourcing more production to contract manufacturers, distorting the order picture. The company appears to have weathered this transition period reasonably well and we believe the deterioration in business visibility has stabilized or marginally improved in the last two months.
For June earnings, we expect that Vitesse will upside by a penny, and that estimates may move up slightly. Starting in June, we expect that the company will cease to give detailed book-to-bill ratios since past discussions have only created short-term volatility in its stock price. Similar to the standard of practice set by PMC Sierra, Vitesse will likely only say that the ratio was above unity, with some set of adjectives to give color to the strength. We expect this commentary will be surprisingly positive in the upcoming conference call. We believe the company will also increasingly highlight the December time frame as an UNUSUALLY GOOD quarter based on forecasts from Lucent. |
