A few weeks old but...
(found this on the Yahoo message board for DMIC)
Prudential Analyst John H. Butler (212) 778-1488 has an Accumulate
rating on DMIC on Feb.9, 2000.
Here is the summary of the report:
-------------------------------------------------
Strong order trends and promising outlook for
Altium were the highlights of the quarter.
Maintaining Accumulate rating and raising
price target to $44.
Expected earning for fiscal year: $0.15 Y2000, $0.50 Y2001.
Believe Strong Order Growth Raises Visibility On Future Top Line Growth.
Digital Microwave (DMC) reported solid F3Q00 results on January 19, 1999,
and posted particularly impressive order trends. Specifically, the company
reported 3Q00 EPS of $0.05 on $77.4 MM in sales. This compares with our
estimate of $0.04 in EPS on $74.6 MM in sales. We note that our estimate
was in-line with consensus. The company reported total F3Q00 orders of
$104.3MM, up 47% sequentially from $71.2 MM last quarter. These impressive
results highlight the strong progress that DMC is making in the wake of a
protracted industry slump that extended through the middle of calendar 1999.
The only weak spot this quarter was DMC?s gross margin, which was flat on
a sequential basis at 30.2% and shy of our 31% estimate. Although a number
of factors contributed to this relative weakness, the two biggest reasons
were higher-than-expected costs for the new DXR-700 long-haul system and
a larger-than-expected revenue contribution from Spectrum II. Spectrum II
is an aging product line that commands a relatively low gross margin. But
despite its age, Spectrum II enjoys a large installed base, and the overall
recovery in demand for microwave is driving strong sales of Spectrum II.
As a result of these trends, management issued more cautious guidance in
regard to future margin trends. Fortunately, this more cautious guidance
is offset by an increase in our revenue assumptions in coming quarters.
Moreover, the latest order trends suggest that there may even be some
upside to our revised revenue estimates.
Clearly, the highlight of the quarter was the impressive ramp in orders,
which reflects a strong rebound in demand for microwave radios. As mentioned
above, DMC?s total orders during F3Q00 rose an impressive 47% sequentially,
which compares with F2Q00 when orders were up only 4% sequentially. Importantly,
orders were up in all regions and across all of the company?s product lines,
except for long haul. We believe that the single biggest factor to account
for these results is a strong rebound in worldwide demand for microwave radio.
In addition, many operators have much greater access to capital than they did
just 6 months ago. This is a key development for DMC which derives a significant
amount of business from emerging carriers in the Asia/Pacific region as well
as Latin America. We also believe that several domestic operators (most
notably WinStar and Teligent) are beginning to accelerate their construction
of fixed broadband wireless networks. Both carriers are important customers
of DMC?s. The order trends for Altium look very promising, leading us to
believe that this key new product will meet or beat our future expectations.
Altium sales during the quarter were roughly in line with our $12.5 MM estimate.
But the key metric to watch for Altium is orders, which were up over 3-fold on
a sequential basis to $18.4 MM. The success of Altium figures heavily into
DMC?s financial performance over the next couple of years. As a result, we
believe that the performance of DMC?s stock will, to a large degree, track
the performance of Altium. So these latest order trends are encouraging as
they support our view that Altium is a best-of-breed product in the
high-capacity microwave segment. For the current quarter (F4Q00), we
conservatively estimate that Altium sales will total $15 MM, bringing our
full year estimate for Altium up to $43.7 MM. For fiscal 2001, we expect
sales of Altium to more than double to $89 MM. Importantly, management
indicated that sales of Altium are pulling through rather significant sales
of the company?s narrowband microwave products. So as DMC broadens its customer
base for Altium, we expect this trend to have a positive impact across the
company?s whole product portfolio.
Overall, we continue to view DMIC as a solid story and an excellent way to
invest in growing demand for wireless infrastructure equipment. DMC has staged
a remarkable recovery over the past year, and we are confident in it?s ability
to ride the recent momentum in the underlying market. In our view, the year
2000 will be a good year for wireless infrastructure suppliers, as carriers
work to put the appropriate infrastructure in place to deploy fixed broadband
wireless services as well as mobile wireless data services. In our view, DMC
is very well positioned to benefit from this theme and certainly, the latest
order trends at DMC support this view. As a result, we continue to rate the
shares of DMIC Accumulate with a 12-month target of $44. |
