This post expands and address some questions and points made previously.
First, S3's estimates for Q2 were cut after direct guidance from the company
at the Q1 earnings conference. While Q1 actually beat estimates, the
company stated that they had faced pricing pressures on their products which
would reduce the overall net for Q2. Unit shipments would be up year to
year, but the selling price of those units would be down causing revenue to be
down 13%ish from Q1. The company, with a 50%+ market share and greater in
certain graphics areas, stated they would NOT relinguish any market share
to competition. This is exactly how I run my business. Never let a
customer walk. Keep them and you live to fight another day. More importantly,
the company also stated that they saw the pricing pressures subsiding in
Q3 and Q4 and returning to their long term models. They corroborated this
in their press release yesterday. From my analysis, many analysts who
cut year numbers from like 1.30ish to .88ish discount the abatement of
pricing pressures. Clearly the company, almost 2/3 thru this quarter,
stated they in fact saw pricing pressures moderating. Take a look at
some of the design wins, which continue to roll in, the mobile product wich
is brand new revenue to them for which design wins are starting to roll in
and their brand new audio chip, add to that the "substantial revenue
stream...startling..impressive" comments from yesterdays release and you
might see some ananlysts making some earnings adjustments slightly
upwards. On 5million shares yesterday, my feelingis that some of the
analysts may have indicated to top clients, ie.mutual funds, that they
may adjust numbers up a bit. Historically, adjusting numbers up is
the number one catalyst to price movements in stock.
Addressing a second question asked, what is a good entry point? You
are looking right at it. Wall Street mentality is at times twisted. the
news out yesterday was nothing new. In fact, anyone who did their research
knew this annoucement and importance was coming. The stock fundamentally
has not changed since last week, yet the Street values the shares at
30% more today that Tuesday. Crazy. Dont forget this is not an
expensive stock. We are not talking about a company at 30 times earnings.
We are talking a market leader, in a rapidly growing area, with this
new technology to provide "substantial revenue stream" in 1988. Of
course the stock was at 9 a few days ago and you MAY get some profit
taking, but i think the only reason the stock did not go higher on
5 million shares (1/10 the company) was that some of the stock that
came available were 9 and 10 type buyers selling in the 12s yesterday.
Dont try to pick the bottom. Buy 1/2 of your desire now and half after
the earnings, up or down.
Or buy 1/2 now and write a put to share atlease a little in upside and you will
get it if it falls, plus you collect premium.
Good hunting
Steve |
