Conference Call Summary and Thoughts
Overall the CC was very positive and informative. Revenue was a huge upside surprise, which resulted in an upside earnings even though the margin was lower than expected due to higher fab cost. Here is my summary:
The goods,
The 3D part is ramping, shipping and there are customers signed up for it.
This is extremely important and positive. customers are "signed up". This product is pretty far along and the (fab) process and designed are now stable and production worthy. This product has a high ASP and fat margins with high barrier to entry. Nice!
Infineon is ready
This is very important because it goes directly to the bottom line. If you follow the financial numbers the revenue was a definite upside surprise but the margins were down. This is the direct result of NeoMagic paying a substantial premium for the extra wafer capacity. Those who follow the semi business know that 0.25 and 0.18 fabs are running at capacity all over the world and "spot" prices (not contract) for wafers are very high. The contract with Infineon is as a long-term supplier, so the cost is much lower. Resulting for higher margins and higher earnings.
Positive response for the new chip
Parkash admitted that some of there customers were "disappointed" ever the manufacturing screw up. But based on the responses he has gotten from the big OEM's, he said I am confident that they will come back, there is no doubt in my mind. When this happens, revenues, market share and earnings should go through the roof.
DVD driver on track to provide revenue this summer
This was a fairly large part of Parkash's opening statement. He ranted and raved about it for a while. NeoMagic seems to be the first entry to the market and considering the market dynamic (listen to CC for more details) this should indeed be huge. They have a working part for demo currently at Comdex and responses were "very positive". Design wins expected soon and revenue from them should come by summer. Continues to be on target.
Digital imaging is on track
This product seems to be further out. If you all remember, Neo made an acquisition last year with regard to a technology for this market. It seems like that is progressing fine and the current target is Q3 2000.
There were also some negatives, which should result for the estimates for the next Q to come down.
Manfacturing constrains will not let up this quarter
Further manufacturing constraint will result in the sequential revenue and earrings decrease this coming quarter. Infineon will not ramp up fast enough to relieve us this Q, and revenues should drop to $55 mil. They should post positive earnings as they continue to sell all they can make.
Market erosion till Q2
Of course we all knew that there would be some market share loss, so this was not unexpected. The good news is that it almost sounds like a sure thing that the market share loss will be temporarily.
Over all a very positive CC. The most likely scenario that I can think of is that starting in the middle of Q2, Neomagic should start gaining back market share. Revenues will grow, margins will expand and earnings will be substantially higher. Also at around that time the revenues from the DVD drivers should start to kick in further providing earnings growth. It is hard to say how the market will react considering that there are some short term issues, but looking out 4 months, things are looking up. Way up.
What do you all think?
Good luck to all
Mani |
