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Technology Stocks : PMC-Sierra (PMCS)
PMCS 11.650.0%Jan 25 4:00 PM EST
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To: George Sepetjian who wrote (2810)10/7/1999 4:42:00 PM
From: Trader Dave  Read Replies (1) of 3818
 
Here's some detail:

Key Points:
1. Defensible business franchise
2. Secular growth projected at 45%-50%
3. Valuation is our one near-term concern

Summary: We are initiating coverage of PMC-Sierra with a Neutral
rating. We consider it one of the premier names in the
communications integrated circuit (comm IC) sector. The company has
a powerful and highly defensible business model that leverages its
specific expertise in the SONET, T1/E1 and ATM protocols. Most of
its individual products constitute markets too small to attract much
competition. However, combined, its markets are large and growing
rapidly enough to support PMC's growth at 45%-50% per year. Most of
its products are sold into telecommunications equipment and are
subject to notoriously long design-in cycles. This serves to further
discourage competition and keep PMC's profit margins high. The
primary thing keeping our rating at Neutral, rather than the Buy or
Aggressive Buy that fundamentals might dictate, is valuation. Its
recent acquisition of Abrizio Inc. probably limits the potential for
upside earnings surprises in the near-term. This is a limitation
that other high PE comm IC stocks are not faced with near-term. We
are initiating coverage rather late in what is, thus far, an
uncorrected advance for comm IC stocks. It is not so much that there
is anything wrong with the company or its stock, as there is with our
timing. Nevertheless, PMC is an integral part of the present and
future of the comm IC segment and we are initiating coverage in hopes
of a future buying opportunity.

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