VRTA----Virata: DSL Chipmaker with Powerful One-Two Punch
Broadband Jun 27 2000 10:43AM CST
The Need for Speed
by Chris Connor
Virata {VRTA} integrates its semiconductors with its software to create a formidable duo that should entice most original equipment manufacturers (OEMs) in the DSL arena. In the context of a rapidly growing DSL market, OEMs desperately need to get cutting-edge, full-featured products to market as soon as possible. Products from companies who specialize in key DSL components such as semiconductors and software are in great demand. However, the process of integrating semiconductors and software is not only difficult, but time consuming and expensive as well. Virata's integrated solution of chips and software not only saves OEMs time and money from integrating semiconductors and software, but it also saves companies the effort of trying find the components from multiple component vendors and then having to test each one. All in all, Virata's integrated solution can save OEMs up to 40 percent in component costs on DSL equipment.
Semiconductors of the Elements
Virata employs an interesting method of naming its different semiconductors. The company names its semiconductors after the different elements in the periodic table like Helium, Hydrogen, Beryllium, Magnesium, Lithium, and Boron. According to Virata, its Beryllium chip is "the (DSL) industry's first ADSL home/office router on a chip" and because of "a Virata patented invention it also delivers better performance over long loops than alternative ADSL implementations." The Boron product is targeted at ADSL modems as a single chip solution. Both Boron and Beryllium look like Virata's primary offerings for Asia due to their early success in that market. Lithium is a very versatile chip that can be used in DSL modems, Cable modems, and set-top boxes. Magnesium is the company's opening salvo into the voice processor market. This particular chip is a combination of one of Texas Instrument's digital signal processors (DSPs) and Virata's voice processing software.
Of all of Virata's chips, Helium and Hydrogen were the two biggest stand-outs in the company's last quarter. In that last quarter, Hydrogen sales tripled while Helium sales fared even better because by quadrupling. Helium is a newer chip that looks to be the company's flagship product for a number of years because it is a low cost replacement for the older more legacy-oriented Hydrogen. The Helium chip is in great demand from companies such as Ericsson {ERICY} and Siemens, and it has been guaranteed manufacturing capacity by LSI Logic {LSI}.
A DSL Chipset that Larger Competitors Need to Look Out For
Virata takes three of its top semiconductor models and combines them on the company's Azurite chipset. Azurite consists of the Beryllium, Magnesium, and Helium chips. This chipset is tailored to power both voice and high speed data services over DSL for the high-volume residential and small-to-medium-size office markets. Azurite is especially important because of its special fall-back mode. Azurite's fall-back mode enables regular telephone service if the DSL link or home power fails. This feature makes the transition to voice and high-speed DSL lines more practical because a customer will have a back-up alternative to DSL if difficulties ever arise.
Explosive Growth Just Getting Started
Although Virata has not been an explosive performer right out of the gate, it is certainly picking up steam. In its last two quarters, Virata has generated stellar sequential and year-over-year revenue growth. Sequentially, the company generated revenue growth of 35 percent and a whopping 196 percent in its last two quarters, respectively. On an annual basis, Virata's sales increased 137 percent and 398 percent respectively. Virata was also able to blow away earnings estimates by reporting a 66 percent narrower-than-expected loss. Fueling this impressive growth has been strong license revenue growth (100 percent gross margins), the acquisition of D2 Technologies, and the aforementioned sales growth in Helium and the older Hydrogen chips. Looking forward, analysts feel that the company will continue its recent explosive growth over the long term; they project that the company will grow its earnings an unbelievable 113 percent rate over the next 5 years. In fact, this writer has never seen a projected growth rate that high.
Bottom Line
Unlike the DSL chipset leader GlobeSpan {GSPN}, Virata is one DSL-oriented company that could excel outside the DSL industry. Virata's integrated solution of chips and software has merits for other areas of broadband outside of DSL, because it saves companies both time and money. The simple fact that Virata's solution can save companies up to 40 percent in component costs indicates that the company has vast potential for the future; the analysts covering the stock seem to be validating this potential. In fact, the company has already begun to realize some of its immense potential with rapid revenue growth in its last two quarters. In the short term, Virata's stock appears to have significant upside as it gets closer to profitability on further rapid sales growth. For example, the company forecasted on June 21st that its fiscal first quarter revenues would be between $25 and $27 million, which would add up to over 100 percent sequential revenue growth for the second straight quarter. Due to this rapid sales growth, the company should be able to trim down its rather rich price-to-sales multiple of about 76 over the next few quarters, even if its stock price continues its recent strength. Looking out over the long term, don't be surprised to see Virata as a powerhouse in offering integrated solutions to most of the broadband industry, which would put it in the company of chip giants like Broadcom {BRCM}, PMC Sierra {PMCS}, and Vitesse {VTSS}. |
