To all: I will have a more complete summary of the CC after the market is open, but what I heard at the CC was great news (and somewhat confusing) According to Doug Norby (the Chief Financial Officer) and Wilf, LSI's business plan is to have 52% Gross margins at the end of next year with year over year revenue growth of 30%. Specifically, 99 revenues were 2.09 billion. Of that communications was 39%, which means that for '99, communications revenues totaled $815 million. LSI expects this market to grow by 60%, which means that revenues will be $1.3 billion for communications this year. Networking and computing accounted for 35% of the revenues in ‘99, which means that for '99 revenues totaled $732 million. LSI expects this area to grow by 35% in '00. This means that this segment will contribute $988 million this year. Storage area networking accounted for 13% of the business in ‘99, which means that this area accounted for $271 million in '99. LSI expects this area to grow by 35% in '00. This means that this segment will contribute $365 million this year. Finally, what LSI calls its "Legacy" products will decline from 14% of the business this year to 3% in '00 (This is the old gate array business that includes military and medical products). Thus, this business, which totaled $271 million in '99, will only total $80 million this year. As a result, total revenues for 2000 are projected to be $2.733. This means a growth in revenue of 30.7%. But that is not all. Because of the growth in the communications segment, the overall margins will be improving to the extent that pre tax net margins could hit 20 percent for '00, which means that $2.40 is a fair EPS for the year. Better yet, by the end of '01, when revenues could also have increased by 30%, gross margins are targeted to hit 52%, which means EPS of $3.65 for '01. In turn, this would mean a twelve month target price of $125 with an PE ratio of 35. Moreover, with projected earnings at $2.40, today's price of $88 is not that far out of line, since $2.40 with a PE of 35 would generate a price of $84 a share.
(The confusing part is that I thought LSI had divided its businesses up into six divisions. Now they are referring to four divisions--none of which have the name "Consumer" in it. Furthermore, I never heard the name "Legacy" before.)
On the other hand, if the aforementioned three market segments/divisions grow at the same rate in '01 as they are projected to grow in '00, then revenues for '01 will reach $3.924 billion for the year, and the 12 month target price would rise to $135 (assuming a PE ratio of 35)--thus leaving an investor with a 53% return on his/ her money for the year |
