CSFB:Mgmt Tempers Guidance, But Maintains Bullish Outlook,8/1/00
Earlier today, we met with company management to discuss in detail the past
quarter and its outlook. The company indicated that our Q3:00 and Q4:00 gross
margin assumptions of 43.7% and 44.5%, respectively, are slightly high. The
company feels more comfortable with gross margins around 43.2% and 43.3% for the
two quarters, respectively. However, the company also felt our combined R&D and
SG&A assumptions were slightly conservative for the two quarters, to the tune
of 10 basis points in Q3:00 and 100 basis points in Q4:00. Factoring these
changes in, we would arrive at a Q3:00 EBG estimate of $0.31. However, it is too
early in the quarter to make such a change, as the company has built
significant backlog over the last two quarters and we believe the company is
offering conservative revenue guidance.
We believe it is also important to remember LSI's robust communications business
beneath all the rubble of last quarter's issues. The company believes that
revenues from communications segments will grow 65%+ year-over-year in 2000,
accounting for over 50% of revenues by the September quarter and over 50% of
revenues for the year. With continued design momentum in Ethernet PHYs and
switches, ADSL DSLAMs and customer presence equipment, as well as CDMA handsets,
LSI's growth should continue to be led by its communications segments.
We are maintaining our 2000 and 2001 revenue and EBG estimates. We believe LSI's
current valuation (21x our 2001 EBG estimate), represents a good entry point for
longer-term investors who can weather its near-term hurdles. We will continue to
monitor these near-term execution hurdles, namely: (i) the aggressive ramp of
its Gresham, Oregon fab; (ii) its aggressive cost containment plan; and (iii)
the successful integration of DataPath and its corresponding ramp to revenues of
$100 million in 2001 from $0 approximately 18 months prior. Further, we believe
LSI is facing increased competition from companies like Broadcom (BRCM - Buy -
$224.3), ST Microelectronics (STM - Strong Buy - $56.9), and Marvell (MRVL - NR
- $45.7). We maintain our BUY rating and $48 price target.
Price Target Mkt. Value 52-Week
07/31/001 12 Mos Div. Yield (MM) Price Range
USD 34 $48 - None $12,002.0 $90.4-21.6
Annual Prev. Abs. Rel. EV/ EBITDA/
EBG EBG P/E P/E EBITDA Share
12/01E $1.60 21.3X 93%12/00E 1.21 29.1 116%
12/99A 0.53A 64.2 228%
March June Sept. Dec. FY End
2001E $0.36 $0.38 $0.42 $0.44 December
2000E 0.26A 0.29A 0.32 0.34
1999A 0.04A 0.10A 0.17A 0.22A
Total Debt (6/00) (MM) $1,058
Book Value/Share (6/00) $5.76Debt/Total Capital (6/00) 36%
Common Shares (MM) 365Est. 5-Yr EPS Growth 25%
Est. 5-Yr. Div. Growth - |
