Excellent article by Needham & Co analyst Rich Valera!!!
america-invest.com
The orders keep on coming
Thursday, Jun. 15, 2000 08:27 PDT
Amid another volatile month for technology stocks - including
most of our covered stocks -- we at Needham & Co. saw the
robust demand for broadband wireless equipment, which we had
noted earlier in the year, continues.
The companies in our universe with exposure to broadband
wireless include system-level providers Adaptive Broadband
(ADAP) ($26.50, strong buy), Digital Microwave (DMIC)
($27.94, buy) and P-Com (PCMS) ($7.34, buy), as well as
subsystem-level providers Celeritek (CLTK) ($48.13,
restricted) and Remec (REMC) ($33.94, buy).
All of these companies (with the possible exception of P-Com,
which does not disclose book-to-bill numbers) posted record
bookings in their most recently reported quarters.
o Adaptive Broadband posted a 3.3:1 book-to-bill in its
March-ending quarter (off of a relatively small revenue
base of $8.3 million).
o Digital Microwave recorded a 1.22:1 book-to-bill in its
recently reported quarter.
o P-Com's record level of visibility entering the June
quarter is a good indication of bookings strength.
o Celeritek posted a 3.0:1 book-to-bill in its recently
reported quarter.
o Remec posted an overall book-to-bill of 1.7:1 and a 2.2:1
book-to-bill in its broadband products group, which is
responsible for its broadband wireless products.
We believe these impressive bookings numbers reflect the
exceptional demand for broadband wireless infrastructure, as
numerous carriers transition from the trial stage (which
seems to have lasted far longer than most expected) into
initial deployment.
However, as encouraging as this strong demand is, these
outsized book-to-bill numbers highlight the capacity
constraints that most of these companies are currently
facing. These bookings imply sequential (not year-over-year)
revenue growth rates in the 20% to 300% range, clearly well
in excess of those likely to be realized given the current
capacities of the companies involved.
Accordingly, we believe the most significant challenge our
wireless subsystems companies face over the next few quarters
is to rapidly ramp production capacity while managing the
component shortages that have plagued wireless equipment
providers to varying degrees.
Some companies, such as P-Com and Telaxis (TLXS) ($25.63, not
rated), have seen substantial negative effects on their
revenue and profitability due to an inability to attain
certain components: MMICs in P-Com's case and discretes such
as capacitors in Telaxis' case.
Conversely, we saw Digital Microwave and Remec successfully
manage their way through component tightness, with minimal
effect on their respective business. These are the companies
we would focus on as being among the best-positioned to take
advantage of the opportunities.
Highlighting Digital Microwave and Remec
>> DIGITAL MICROWAVE (DMIC)
We view Digital Microwave, which recently announced a name
change to DMC Stratex Networks (subject to approval at its
stockholders' meeting Aug. 8), as one of the highest quality
companies in our coverage universe.
o We believe DMIC's current F1Q01 is progressing well and
that it is well-positioned to meet or exceed our revenue
and EPS estimates of $92 million and 10 cents, respectively.
o While we expect DMIC to see solid bookings during the
quarter, we would expect an overall book-to-bill that is
positive but likely lower than the 1.22:1 level of F4Q00.
In its F4Q00, DMIC reported strong results of $88.6 million
in revenue, exceeding our $84.9 million estimate, and 10
cents in EPS, exceeding our 8 cents estimate, which equaled
consensus.
DMIC successfully navigated a very tight component market
during the quarter to realize 14% sequential revenue growth
and a 220 basis point sequential gross margin improvement,
with gross margin of 32.4% handily exceeding our 30.7%
estimate.
DMIC had another very strong booking quarter, posting an
overall book-to-bill of 1.22:1, following the exceptional
1.35:1 in F3Q00.
We believe the strong bookings, though likely unsustainable
at these levels, highlight the attractiveness of DMIC's
overall product line (being lead by Altium), the strong
demand for broadband wireless access products, and the
strength of DMIC's relationships with major OEMs,
which include Lucent and Nortel.
>> REMEC (REMC)
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