PMCS: December Quarter Earnings Preview
Salomon Smith Barney
Friday, December 31, 1999
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--SUMMARY:--PMC-Sierra--Semiconductors --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/98 EPS $0.14A $0.15A $0.15A $0.16A $0.60A Previous 12/99 EPS $0.18A $0.22A $0.25A $0.27E $0.92E Current 12/99 EPS $0.18A $0.22A $0.25A $0.27E $0.92E Previous 12/00 EPS $0.28E $0.31E $0.33E $0.36E $1.28E Current 12/00 EPS $0.28E $0.31E $0.33E $0.36E $1.28E Previous 12/01 EPS $N/A $N/A $N/A $N/A $1.74E Current 12/01 EPS $N/A $N/A $N/A $N/A $1.74E Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior:No Change Price (12/30/99)....:$150.88 P/E Ratio 12/99.....:164.0x Target Price..:$200.00 Prior:No Change P/E Ratio 12/00.....:117.9x Proj.5yr EPS Grth...:40.0% Return on Eqty 98...:36.0% Book Value/Shr(99)..:2.70 LT Debt-to-Capital(a)1.0% Dividend............:$N/A Revenue (99)........:257.60mil Yield...............:N/A% Shares Outstanding..:77.3mil Convertible.........:No Mkt. Capitalization.:11663.0mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION:------------------------------------------------------------------ PMC-Sierra is a leading supplier of high-performance mixed-signal IC solutions for broadband networking equipment markets, including interface chips for ATM, T1, and SONET transmission. Customers include virtually every networking equipment company of consequence, including Cisco, Lucent, Nortel, Alcatel, Marconi, and Tellabs. PMC-Sierra continues to enjoy very strong momentum in its networking chip business, so overall sales in December are likely to rise at double-digit sequential rates to roughly $80 million (our published model is $76.6 million). That should bring the growth for PMC's networking chip business to 75% for the year, pushing total sales growth for the company to 60%. We expect reported EPS will be a penny better than our published estimate and First Call consensus of $0.27. The backlog build for March should support another double-digit sequential slope in networking chip sales, likely better than our current model of 10% growth. Our current sales growth estimate for next year is in the 50% range, which is beginning to look conservative given the current business momentum. We expect to revisit estimates after the company's earnings conference call. PMC-Sierra's unique position in the market is best illustrated by its gross margins as a percentage of sales, which were 79.4% of sales in the September quarter. Backing out the 5% of sales which are in the lower margin medical electronics market, PMC's networking chip gross margins are over 80%. From a big picture standpoint, the build-out of the broadband data infrastructure should continue to be the major driver of PMC-Sierra's business in 2000 and beyond. In addition, the ramp in revenue for several newer products such as the TEMUX, COMET, and VORTEX should begin to be more significant contributors to PMC's growth in coming quarters. As an added wildcard, we continue to receive very positive industry reaction to the Abrizio broadband switch architecture, although the timing of the revenue ramp from this product remains uncertain. ---------------------------------------------------------------------------- ---ADDITIONAL INFORMATION AVAILABLE UPON REQUEST--- Salomon Smith Barney ("SSB"), including its parent, subsidiaries and/or affiliates ("the Firm"), usually makes a market in the U.S.-traded over the counter securities recommended in this report and may sell to or buy from customers, as principal, securities recommended in this report. The Firm or employees preparing this report may have a position in securities or options of any company recommended in this report. 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