Solomon Smith Barney Earnings Reiteration [9/27/00]
zx, here you go.. the first of them right here, unsurprisingly by SSB,
the "flash glut" group headed by Johnathan Joseph:
---
SSTI: Company Reports Upside To Expectations
01:55pm EDT 27-Sep-00 Salomon Smith Barney (Jonathan Joseph 415-955-4998) SSTI
SSTI: Company Reports Upside To Expectations
SALOMON SMITH BARNEY
Silicon Storage Technology (SSTI)#
SSTI: Company Reports Upside To Expectations 3S (Neutral,
Speculative)
Mkt Cap: $2,209.1
mil.
September 27, 2000 SUMMARY
* Silicon Storage Tech reported today Q3 revenue and
SEMICONDUCTORS earnings would be well above our estimates, largely
Jonathan Joseph due to continuing strong demand and improved supply
415-955-4998 from the company's primary foundry, TSMC. The
jonathan.joseph@ssmb.com company has been signaling for several weeks that
Dunham Winoto its results for the quarter would be very strong.
415-951-1875 * Demand continues to run well ahead of the
company's ability to supply, especially as Intel
(INTC--44 5/8, 2M) continues to exit from the
low-density Flash business and turns the PC BIOS
market over to SST, among others.
* Given the good outlook, we are raising our Q3 EPS
estimate from $0.24 (versus $0.01) to $0.36 and Q3
revenue from $129 million (up 25% qoq and 267% yoy)
to $155 million (up 50% qoq and 341% yoy). We are
also raising 2000 EPS from $0.92 to $1.21 and 2001
from $1.58 to $2.00.
FUNDAMENTALS
P/E (12/00E) 21.5x
P/E (12/01E) 13.0x
TEV/EBITDA (12/00E) NA
TEV/EBITDA (12/01E) NA
Book Value/Share (12/00E) NA
Price/Book Value NA
Dividend/Yield (12/00E) NA/NA
Revenue (12/00E) $522.0 mil.
Proj. Long-Term EPS Growth 25%
ROE (12/00E) NA
Long-Term Debt to Capital(a) NA
(a) Data as of most recent quarter
SHARE DATA . RECOMMENDATION
Price (9/26/00) $26.02 Current Rating 3S
52-Week Range $36.25-$4.54 Prior Rating 3S
Shares Outstanding(a) 84.9 mil. Current Target Price $35.00
Convertible No Previous Target Price $35.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/99A Actual ($0.09)A ($0.05)A $0.01A $0.07A ($0.06)A
12/00E Current $0.11A $0.24A $0.36E $0.46E $1.21E
Previous $0.11A $0.24A $0.24E $0.31E $0.92E
12/01E Current $0.42E $0.48E $0.53E $0.58E $2.00E
Previous $0.32E $0.37E $0.42E $0.47E $1.58E
12/02E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/00E $1.00; 12/01E $1.94; 12/02E NA
SUMMARY (CONT'D)
* While we fully recognize SST itself is doing an excellent job, we expect
increasing supply in the Flash market will in the next quarter and two result
in weaker prices and eventually slower growth. As a result we retain our
current rating of 3S and price target of $35.
COMPANY IS HITTING ON MANY CYLINDERS
We recently met with management, and came away impressed with the solid job the
company is doing in developing new products and diversifying its products. The
company's main push is into application specific products, which make up only a
small percent of revenues today, but is targeted to reach 40-60% of revenues by
the end of next year. Those products include:
* Firmware Hub. Perhaps the company's biggest near-term gain from new products
will come from capturing the low-density PC BIOS business Intel has handed
over to several suppliers, including SST, Winbond, and ST Micro (STM---51
7/16, 2H). SST believes it is getting the lion's share of this new business.
We estimate FWH revenues, mostly 2-4Mb Flash selling for $4-6, amounted to
$2-3 million (2-3%) of revenues in Q2, $10-15 million (10% of revenues) in
Q3, and probably $30-40 million (15-20% of revenues) in Q4.
* RAM/ROM Combo. Growing demands for high performance cache and code storage
memory in cellular handsets and set-top boxes, among other applications, is
promoting innovative techniques in integration and packaging. One recent
application, supplied by a number of players, is the marriage of SRAM and
Flash EPROM on a single package. The company is combining its 2-16Mb Flash
with 0.5-4Mb SRAM outsourced from UMC on these packages. At present, this is
a small, but rapidly growing business for the company.
* Disk Cards and Compact Flash Cards. The company recently announced it has
begun shipment of a shipment of a solid state storage memory called an ATA
Disk Chip, which also utilizes its i8051-based controller technology with
Flash densities up to 64MB. This chip goes into all manner of electronics,
including cell phones and set-top boxes, to hold code. The company is second
sourcing the product to Apacer, a leading supplier of memory cards. In
addition, SST supplies controllers and NOR Flash to makers of CompactFlash
cards, which are used in data storage applications like digital camera
storage and MP3 players. The company estimates its foundry, TSMC, has over
100 design wins for its embedded controller and Flash memory.
* Controllers with Embedded Flash. The company has begun to ship its i8051-
based 8-bit controllers with bits of embedded SuperFlash for holding small
bits of program. This could be a solid, moderate growth market over time for
the company as it ships into a wide variety of automotive, industrial,
consumer, and computer applications.
UPSIDES TO OUTPUT HELPED UPSIDES TO REVENUES.
Management has been hinting for the past month it was seeing upsides to output
from its TSMC foundry, and could see higher revenues in Q3 and Q4 as a result.
These upsides came from 1) Increased wafer yields at Fab 7, the old TI-Acer
fab, 2) accelerated movement to shrinks; the company is now averaging about
0.35 micron design rules, and hopes to go to 0.25 micron and 0.18 micron
progressively in the next several quarters, 3) customer cancellations at TSMC
also provided some upside; SST has written into its contract first right of
refusal for any freed up wafers from the Taiwanese foundry. As capacity loosens
up, we would expect continuing strong upsides to revenues by SST in the next
quarter and two.
PRICING CONTINUING TO SOFTEN IN THE SPOT MARKET.
Following news of slower than expected sales by cellular handset makers (a
business than makes up only a few percent of SST's direct revenues) and weaker
than expected PC sales, chip brokers are seeing declining prices in the Flash
spot market. Last week, prices declined from 4-9% across all density levels.
Spot prices are still above contract prices, but if this trend continues, we
could see contract prices begin to fall in a quarter, or so, which would dampen
growth and profitability in the sector.
---
Couple of pleasant surprises: 100 design wins for ADC product?! in two months?
FLSH better be concerned. TSMC's agreement for "first dibs" on fabrication space.
Both quite bullish upside potential revenue sources.
All the best, docpaul |
