ISSI/INDICATIONS ARE POSITIVE FOR DECEMBER QUARTER/STRONG BUY
SG COWEN
Billy/Romaine
212-495-6000
November 6, 2000
Integrated Silicon Solutions (ISSI $13 3/4)
Strong Buy (1)
Indications Are Positive For December Quarter
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Quarterly EPS
FY Sep Old EPS New EPS P/E Q1 Q2 Q3 Q4
1999A ($0.52) ($0.23) ($0.20) ($0.06) ($0.03)
2000E $0.89 $0.02 $0.14 $0.32 $0.41
2001E $2.00 6.9 $0.43 $0.48 $0.52 $0.56
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Key Points:
1. High-speed SRAM demand, which is comm infrastructure-driven, appears strong
2. Capacity additions have been modest, overall
3. The improved availability of foundry capacity helps ISSI
4. No change to our estimates at this time,our confidence in current Q is high
5. The shares look extremely cheap at current levels, our rating remains
Strong Buy (1)
Summary: Demand for high-speed SRAM remains strong in CQ4, by all accounts.
High-speed SRAM demand is driven primarily by communications infrastructure
equipment demand. Unlike the Flash, DRAM or low-speed SRAM (PC-related)
markets, inventories and/or significant capacity additions do not seem to
be much of a factor in the high-speed SRAM market. The supply demand
balance has, no doubt, been aided by the withdrawal from the high-speed
SRAM market this year of Motorola. It will be aided to a lesser extent
next year by the gradual reduction of IDTI's SRAM wafer starts. The
increased emphasis that Micron Technology has placed on the high-speed SRAM
market has shown no signs of upsetting the very constructive supply/demand
dynamics. ISSI, which is fabless, has been capacity constrained and had to
deal with rising wafer prices much of this year. We see both of these
situations easing near-term as foundry capacity frees up. The freeing up
of foundry capacity helps fabless ISSI without having any other immediate
impact on the supply into the high-speed SRAM market, since its
competitors, overwhelmingly, manufacture their own wafers. We came into
this quarter feeling that supply, not demand, was the limiting factor to
ISSI growth. Our sense is that foundry capacity may have loosened up
significantly enough, soon enough in the Q, that there may be some upside
to our estimates. Visibility in a multi-sourced standard products market,
like high-speed SRAM, is usually limited to 4-6 months, at a maximum.
Visibility extends to that maximum now. It is still too early for us to
raise our estimates, but we are, at a minimum, more comfortable with them
than we were at the beginning of the Q. We are retaining our $0.43
estimate for FQ1 and our $2.00 estimate for FY01. At less than 7x FY01
estimates the shares are very cheap by historical standards. The stock
market is valuing stocks like ISSI as if a severe cyclical downturn were
imminent, if not already well underway. There is no evidence of any such
downturn in the high-speed SRAM market at this point. We are retaining our
Strong Buy (1) recommendation. |
