Hi Clint - These are good observations and I do believe that LSCC is near its high end (short term) price range. There are several positive points which need to be looked at too.
(1) The net margins have increased over the last 24 months as the company moves more of their sales from the low density products to the high density PLD's. When management started this program, 30% of their sales were from the High density PLD's and with the most recent report, I believe it is now around 55%. The longer term goal is to grow the high end line so that it represents 70% of their sales. AS a result, the PE should be more in line with ALTR and Xlynx at 25-30. LSCC has always sold at a discount to these companies. Last year the PE was as low as 15 x 1997 earnings! The company has higher margins in their high end line (which is not currently priced in the market) so they can be more agressive in the future to price and supply/demand issues.
(2) LSCC continues to be very profitable with the low end PLD's where margins and competition is more intense. I believe even AMD has dropped production with many of their low density PLD's as they could not compete. Therefore, management has shown they can compete in both ends of these markets and have delivered over 20 quarters of positive (predictable) earrnings and sales growth.
(3) Management, management and management....continues to excell and run this company lean, mean and smart. Longer term, they are moving into China (have opened an office in 1995) to eventually set up a joint venture FAB (with the Government) and/or explore other opportunities. It takes many years to develop these relationships and LSCC is two years ahead of their competition.
(4) The PLD market is a growth market and IDC estimates growth at 25%-35% per year through 2005.
In summary, LSCC has had great gains and may be ahead of it'self here but longer term, the company continues to do a lot of thing right. I have sold part of my position and continue to write covered calls on what I have left. On any correction, I will be selling naked puts to obtain an entry point in the $30-$35 price range. For the long term holder, IMO LSCC continues to be a growth company and should be priced in the $65-$70 range based on 1988 estimates. As we know, these companies can correct significantly with any general hi-tech market correction. Therefore, I believe this is one company that should be included on the 'buy' list on any major correction.
Hope this helps.
EKS
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