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Technology Stocks : Oak Technology

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To: jrh who wrote ()	6/23/1996 5:23:00 PM
From: Tech Man	of 19

Do not use P/E alone to compare companies OAKT's P/E is probably misleading. It is highly probable that OAKTs customers double ordered in the past, thus making the past earnings an unreliable number for future earnings. I am assuming that OAKT's customers have double ordered based on the fact that orders have dropped off significantly this quarter and because many other semiconductor companies are having similar earnings problems with analysts citing double ordering as the culprit. I did a rough analysis assuming the real demand for OAKT's chips was about half, so revenues would be about 45M, Cost of goods sold 20M. Leaving R&D and General Expenses about the same, 11M, and taking away about 5M for taxes, left 9M in profits. This translates to an EPS of about .20 for the quarter. If you do that for the last 4 quarters, you'd probably end up with a P/E around 10 to 15 (in line with the rest of the industry). I know this is rough and the 1/2 revenues is drastic, but this is just an example of how the P/E can fool you. To summarize, OAKT may be fairly valued here and I would rather invest in another company without the questions that OAKT must answer before they go back up in price. I hope you do well in whatever stock you choose.

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