To: Jack Barker (2914 )
From: A. Edwards Sunday, Oct 10 1999 5:09PM ET
Reply # of 2916
Merrill's research team has just completed a 100-page communications semiconductor report on Friday, Oct. 8, 1999:
Highlights:
* We expect robust growth in communications equipment end markets over the next five years driven by the Internet, converging voice and data networks, and deregulating telecom service markets.
* Suppliers of standard (ASSP) silicon should grow faster than the overall sector, as equipment vendors leverage standard products to gain time to market and focus scarce engineering talent at higher value added activities.
* Suppliers of standard wide area networking (WAN) silicon should grow faster than the overall sector - at CAGRs of 20-33% over the next five years.
* The risk is in the high multiples that the stocks in this group command. However, we believe that the multiples are justified. We are in the early stages of several secular industry trends, which lend increased confidence to the projected growth rates and EPS for companies in the sector.
* We are reiterating BUY ratings for the intermediate or long term include Broadcom, PMC Sierra, Vitesse and Conexant Systems. Companies we are recommending at an Accumulate rating include MMC Networks and Galileo Technology.
* We are initiating coverage of two additional communication-focused semiconductor companies - Applied Micro Circuits Corp. and TranSwitch. Applied Micro is being initiated at a rating of Accumulate for the intermediate term and Buy for the long term, while TranSwitch is being initiated as an Accumulate for both intermediate and long term.
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