Prudential raised estimate and Target Price: $ 44
Subject: Alliance Semiconductor (ALSC-$23 15/16)—-OTC
SEMICO
COM EPS SEO OPINION
Current: Strong Buy
Analysts: Hans C. Mosesmann (650)320-1631 Prior:
Traci Tsuchiguchi (650)320-1639 Risk: High
12-Month Target Price: $ 44
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June Quarter Discussion
Alliance reported strong June quarter revenues of $47 million and EPS $0.13.
This exceeded our top line estimate of $44 million and EPS estimate of $0.10.
The company’s results were $1 million better on the top line than its pre-released
range of $44 to $46 million and came in at the high-end of its pre-released
range of $0.10 to $0.13 in EPS. Sales in the quarter were up 64.4%
sequentially and 167.7% year over year. Gross margins in the quarter came in
at 37%, in line with our expectations and up 30 basis points sequentially.
Operating expenses were significantly lower than we had anticipated with R&D
at 7.6% of sales and SG&A at 9.5% of sales, down from 13.1% and 11.6%,
respectively from the March quarter. We had expected R&D and SG&A to come in
around 9.5% of sales and 11.5% of sales respectively.
Revenue Split
In the June quarter, SRAMs accounted for 44% of revenues and DRAMs accounted
for 56% of revenues, this is in line with the company’s near term plan of
keeping DRAMs under 60% of revenues despite exceptional demand. In the March
quarter, SRAMs accounted for 42% of sales and DRAMs accounted for 58% of
sales. So, revenues from SRAMs were up 73% and revenues from DRAMs were up
almost 59% sequentially. In terms of unit shipments, 54% of units shipped
were DRAMs and 46% were SRAMs. A total of 17 million units shipped were
shipped in the June quarter, up 51% sequentially. Corporate ASPs were $2.78,
up 5.7% sequentially. In terms of end markets, Alliance’s split was as
follows: 13%, computer/peripherals, 13% consumer and instrumentation, 30%
communications, 44% through distribution. Revenues by geography were as
follows: 48% domestic, 26% Taiwan, 17% Asia, and 19% Europe.
Twenty-Nine New Customers Added In The June Quarter.
Alliance significantly increased its customer base in the June quarter. In
fact, its top customer in the June quarter was Alcatel, which accounted for
over 7% of sales. In the preceding quarter, Alcatel only did a couple hundred
thousand dollars worth of business with Alliance. Other top customers
included 3Com, Pace, and General Instruments.
Balance Sheet
Alliance ended the June quarter with cash and short-term investments of $779.9
million, down $140.9 million from the end of the March quarter. Inventory
days on hand declined dramatically to 152 days from over 230 days in the March
quarter. Receivable days also declined to 51 days from 64 days in the March
quarter.
We arrive at our new price target by applying the same 20 times multiple we have been using
to our calendar 2001 EPS estimate of $0.87, which gives us a value of $18 for
the company’s operations. We then add the $30 (un-taxed) value of the
company’s public portfolio, discounted at 25%, which gives us a $23 value for
public investments and an additional $3 for the company’s private investments.
The sum of the 3 parts equates to $44, our new price target.
messages.yahoo.com
- We reiterate our Strong Buy rating and our new $44 price target, up from
$38. We are raising our fiscal 2000 and 2001 estimates to $0.69 from $0.47
and to $0.90 from $0.70, respectively.
Wow, this is a cheap stock. Alliance’s operations have more than turned the
corner and its public investments (un-taxed) are worth more than the company’s
share price. While there has been a good deal of concern recently regarding
the state of the cycle, particularly for memory, we continue to believe that
prospects for Alliance (and the cycle) continue to be bright. In fact, demand
at Alliance is off the charts for its SRAMs, legacy DRAMs, and its upcoming 8
MB flash. We would note that the company provides a broad range of SRAM
products, and it supplies into the legacy DRAM market (16 MB and below), so it
does not compete against large, mainstream DRAM manufacturers. We continue to
believe that ALSC presents a compelling investment opportunity as a multi-faceted
story with its recently announced Communications Products Division as
icing on the cake.
Estimate Revision
We are raising our FY01 revenue and EPS estimates to $245.4 million and $0.69,
up from $220 million and $0.47, respectively. We are also raising our FY01
revenue and EPS estimates to $360 million and $0.90, up from $340 million and
$0.71, respectively. We continue to believe that these estimates are
conservative.
We are raising our 12- month price target to $44, up from $38.
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