barron's top 500 companies pmcs #2
notes from article
PMC-Sierra, No. 2 on Barron's 500, also sells chips that empower
communications over the Information Highway. But the British Columbia
company is one of a new breed of "fabless" chip producers, making it a
pure-brain shop. While the company draws up detailed blueprints for chips, it
subcontracts the actual fabrication to Asia-based semiconductor outfits. That
frees PMC-Sierra from the awesome expense of building and rebuilding its
own fab plants every half-decade or so, to keep up with changing technology.
The company's main market is also somewhat different. PMC-Sierra makes,
designs and sells chips for network equipment builders such as Nortel
Networks, Cisco Systems and Lucent Technologies. It got into this business
in the mid-1990s, when the firm presciently saw its main business at the
time-making chips for consumer modems -- as mature. And, happily, the new
market it targeted -- networking communications chips -- was just about to
take off, along with the Internet.
Sales at PMC-Sierra rose 62%, to $262 million, in 1999, but the trend
clearly accelerated in the year's second half, promising more good news in
2000. Earnings, meanwhile, jumped 56% to 47 cents per share in '99, and
analysts look for the company to advance a further 68% or more to 79 cents
a share this year and $1.12 in 2001. That kind of growth didn't protect the
stock recently: After rising from around 15 in early '99 to a high of 255 1/2
earlier this year, PMC-Sierra now trades around 145.
"Our business of broadband semiconductor chips is the sweet spot in the
market," says PMC-Sierra CEO Bob Bailey. "We'll see market growth of at
least 75% this year, probably more, and it won't stop there.
"Some say we are the next Intel," Bailey adds
with no false modesty. "And the truth is that our very high growth rate, times
our very high margins, creates a momentum for market share and earnings.
We are changing the face of our world."
"This is one of my favorite long-term holdings," says Jeffery Lipton of
Hambrecht & Quist. "It's a great company with a great management team and
really great prospects. What's different about this company is that they truly
understand the system they work in; they know all the hooks and details in a
way few others do. I'm looking for top-line growth of close to 100% this
year.
"As for the stock price, in this market, it's hard to go out on a limb," he adds.
"Still, this a stock that a lot of people are in love with, and have been waiting
on the sidelines for an opportunity to get in. This could be that opportunity." |
