EXAR--this one is a little gem IMO. Here is a very important report by Prudential which needs to be heard, read, marked, learned and inwardly digested.
Exar exceeded June-quarter expectations delivering $0.12 in earnings, a
$0.02 upside to $0.10 estimate.
-Communications was up nearly 20% sequentially, was 75% of revenues and was
80% of the bookings.
-EXAR stock is a true bargain for investors eager to play broadband
communications.
-We are raising our 12-month price target for the stock to $42 from $35.
We believe Exar has successfully completed its two year transition away
from legacy products and emerged as a very attractive broadband
communications pure-play. Communications revenues increased nearly 20%
sequentially, represented 75% of the June quarter's sales and 80% of the
bookings. Visibility is drastically improved, design win momentum is
accelerating, and gross margins are increasing. The stock at current
prices is a bargain relative to other communications pure-plays. We
reiterate our Strong Buy for EXAR and are raising our 12-month price target
to $42 from $35. Our valuation is based on a 35 times multiple to our
conservative 2001 calendar earnings of $1.20.
We are revising upward our fiscal 2000 revenue and EPS estimates to $72.5
million and $0.67, from $72.0 million and $0.65 respectively essentially
adjusting for the June quarter upside. For fiscal 2001, we are revising
upward our revenue and EPS estimates to $92.0 million and $1.05, from $90.0
million and $1.00.
First Quarter Fiscal 1999 Results: Exar reported June quarter 1999 revenues
of $16.3 million, down 25.3% year over year from $21.8 million and up 7.6%
sequentially from $15.1 million. The company progressed its transition
away from older businesses a year ago and into the strategic communications
area. Excluding a $7 million one-time gain on the sale of Cypress (CY)
stock during the quarter, EPS for the quarter was $0.12 exceeding our $0.10
estimate (consensus) by two cents. Including one-time gains and required
employee incentive accruals of $3 million, reported EPS was $0.40.
Gross margins for the quarter of 55.8% were up 140 basis points due to the
increased mix of higher-margin communications products and was the key
reason for earnings upside. Gross margins should continue to trend upward
to the 56%-57% range over the next year and longer term we see no reason
why margins would not trend several hundred basis points above these
levels.
Revenue breakout for the quarter by product type was as follows:
communications was up strong 19.6% sequentially and was 75% of revenues
(68% in the March-quarter); video and imaging was up 7.1% and was 17%
(17%); and as legacy declined 15.4% and represented 8% (15%). The
company's communications focus is clearly paying off given that this
segment had been up sequentially 18% in the March-quarter. Approximate
breakout geographically for the March quarter was as follows: APAC was 14%
of bookings; North America was very strong at 68%, Europe 13%, and Japan
5%.
Bookings Were Linear In The Quarter-No Seasonal Slowdown For
September-quarter Sales and bookings in the quarter were fairly linear and
robust with this trend continuing so far in July. The book to bill in the
quarter was 1.06 and that of communications was a very strong 1.12. As a
result of these strong trends, the company does not expect to see any
seasonality in the September quarter and actually is enjoying good
visibility into the December-quarter. Inventories in the channel appear to
lean which indicates that the current demand environment is end market
driven.
Transmission Design Wins Strong - Penetrating New Top Tier OEMs: We are
impressed by Exar's communications design-win momentum in the quarter,
posting a whopping 30% sequential growth from an already strong number in
the March-quarter. A design win is a commitment by a customer to use a
particular chip solution and correlates positively to future revenue
streams as these design wins transition to volume orders six to 18 months
down the road. In particular, the company's new XRT7300 line interface
unit (LIU) appears to have become the leading solution in physical layer
DS3 applications. Design-wins in the quarter included: the company's first
wireline win at Ericsson, two wins at Lucent one of which was for an edge
router application, four multi-channel LIU wins at Nokia, an echo canceller
win at Tellabs, a multiplexer win at Siemens, and a host of others. While
the video/imaging area did not exhibit the excitement of exhibited by
communications, we believe Exar's focus on the high-end video applications
will start to pay off over the next several quarters. An example of this
strategy was the introduction during the quarter the fastest low power
image signal processor industry for video and imaging applications.
The company's balance sheet remains solid. Cash in the quarter increased
$12.7 million sequentially to $93.9 million from $81.2 million, and
inventories decreased to $5.1 million from $5.9 million sequentially.
Accounts receivable in the quarter decreased to $11.1 million from $11.5
million sequentially. |
