Oil
Help is on the way
George W and Dick Cheny
Get your drill and head to Alaska
Just the mention of it will continue to drive down the price of oil
Last year at this time I was scared by the high valuations
this year I am really getting optimistic
Tax cuts
Lower rates
more reasonable valuations
If you listen to CNBC you would think the food lines are already forming
Wall of worry we have climbed before is being built
Also could you give me your TA read on PXLW
I like this area chips for digital tv and LCD moniters
263% yoy revenue growth
I was in a best buy the other day and their Digital TV room was as big as the regular tv room
Here is a report from jonathan joseph from SSB if anyone is interested ( he was the first to call the downturn in the chip industry this summer )
Happy Holidays
Perry
October 18, 2000 SUMMARY
* Pixelworks reported third (September) quarter cash EPS
SEMICONDUCTORS of $0.06 (versus a loss of $0.17) on revenues of $15.3
Jonathan Joseph million (up 26% qoq, up 256% yoy). EPS were above our and
consensus estimate of $0.03, while revenues exceeded our
forecast of $13.9 million.
Edward Sun * Backlog was up 50% from the second quarter, as demand
for Pixelworks image processors well exceeded the
company's ability to supply. Though wafer support from
Dunham Winoto foundry partner Toshiba is improving, the company expects
to remain capacity constrained into the first quarter of
next year.
* Given the strong demand trends and improving supply
outlook, we're raising our Q4 EPS estimate from $0.04 to
$0.06, 2000 from $0.12 to $0.17, and 2001 from $0.27 to
$0.30. We're also raising our price target from $36 to
$50, which reflects a 16x price-to-sales multiple on our
2001 revenue forecast of $90.6 million.
FUNDAMENTALS
P/E (12/00E) 237.5x
P/E (12/01E) 134.6x
TEV/EBITDA (12/00E) NA
TEV/EBITDA (12/01E) NA
Book Value/Share (12/00E) $2.89
Price/Book Value 14.0x
Dividend/Yield (12/00E) NA/NA
Revenue (12/00E) $51.6 mil.
Proj. Long-Term EPS Growth 25%
ROE (12/00E) 1.8%
Long-Term Debt to Capital(a) NA
PXLW is in the Russell 2000(R) Index.
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (10/17/00) $40.38 Current Rating 1H
52-Week Range $48.50-$10.89 Prior Rating 1H
Shares Outstanding(a) 35.8 mil. Current Target Price $50.00
Convertible No Previous Target Price $36.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/99A Actual ($0.16)A ($0.23)A ($0.17)A ($0.17)A ($0.72)A
12/00E Current ($0.08)A $0.03A $0.06A $0.06E $0.17E
Previous ($0.08)A $0.03A $0.03E $0.04E $0.12E
12/01E Current $0.05E $0.07E $0.08E $0.10E $0.30E
Previous $0.05E $0.07E $0.07E $0.08E $0.27E
12/02E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/00E $0.13; 12/01E $0.30; 12/02E NA
EXCELLENT Q3 RESULTS
After the market close yesterday, the company announced an outstanding
quarter with cash earnings per share of $0.06 (versus a loss of $0.17) on
revenues of $15.3 million (vs. $4.3 million). Revenues were up 256% year over
year and up 26% sequentially. We had been forecasting cash EPS of $0.03
(which was also consensus) on revenues of $13.9 million. Gross margin
increased 260 bp over the previous quarter, while R&D increased slightly but
was more than offset by a decline in selling expenses. The net result was a
0.9% operating margin, the company's first quarter of positive operating
results. Pixelworks attributed improvements in margins to better product mix
with higher ASP as well as greater unit shipments during the quarter. In
addition, bookings remained strong, with backlog increasing 50% over Q2. Most
of the backlog is shippable within 90 days.
FOUNDRY SUPPLY IMPROVING, BUT STILL NOT ENOUGH
With demand for the company's products currently outpacing supply, it seem
clear to us that the company could have done even better if it was able to
attain more foundry capacity. While Toshiba, which is the company's sole
foundry, has done an outstanding job providing upsides in capacity,
Pixelworks was still unable to keep up with the red-hot demand for the
company's products. This supply constraint is expected to last through the
first quarter of next year. The primary drivers of the demand are:
* The flat panel display market has reached a critical mass of 5%
penetration, and if history is any indication, this is the point where most
consumer good shipments accelerate (witness B&W and color TV).
* Investments over the past year in LCD panel capacity continue to bring a
greater supply of panels to the market. As a result, 15" flat panel
monitors are currently selling for less than $1,000, and should drop to
less than $800 by year end, which would stimulate additional demand.
The company is actively looking to improve the supply constraints in several
ways. First, new products, such as the low-end entry codenamed "Crouton" will
be manufactured alternative foundries, such as TSMC. The Crouton will be the
company's first foray into the entry-level flat panel monitor segment, and
has already begun sampling to customers. In addition, we suspect the company
may bring on a third foundry partner over the next 12 months, such as
Infineon# (IFX, $46.18, 1H). Finally, we would expect that the current trend
toward loosening foundry capacity should benefit Pixelworks over the next
several months.
PRODUCT ROADMAP SOLIDIFIES AND CUSTOMER RELATIONSHIPS GEL
The company recently announced a partnership with Analog Devices (ADI,
$67.25, 1H), which should bring ADI's industry-leading converter technology
into the Pixelworks portfolio. By mid-2001, Pixelworks will integrate ADI's
converter technology into its single chip solutions, providing customers with
what will likely be an industry-leading system solution. Though the exact
financial details of the agreement were not disclosed, Pixelworks will pay
ADI a royalty for access to the technology. With ADI's converters, which were
the most frequently selected parts for flat panel monitors, we believe
Pixelworks will have some of the most compelling products on the market,
potentially combining a dual interface (DVI and A/D conversion),
microprocessor, DSP logic, memory, and video processing.
In addition, Pixelworks continues to hone its relationships with important
OEMs. Epson, one of the company's first customers, is still the largest
customer representing about 14% of sales, though it is expected to decrease
as a percent of sales to less than 10% in coming quarters. Meanwhile, several
other important OEMs such as Dell, Compaq, Samsung, and Sony are rapidly
ramping Pixelworks-based monitors, and several should represent 5-10% of
revenues over the next few quarters. Dell, in fact, has even agreed to have
the "Powered by Pixelworks" moniker flash across the screen, which should
help Pixelworks continue to build its brand image. In terms of product
segment, flat panel monitors are expected to account for 45% of the company's
sales by the second half of 2001, up from about 33% in the last quarter.
CHANGES TO MODEL
We are raising our estimate for fourth (December) quarter cash EPS from $0.04
to $0.06, and revenues from $16.0 million to $17.1 million. The increase in
EPS comes from both higher revenues and slightly higher gross margins. For
the next fiscal year, we are increasing our cash EPS estimates from $0.27 to
$0.30 primarily due to higher revenues of $90.6 million (up 75.5%), up from
$84.8 million (up 72.5%). Our new 2001 EPS estimate also reflects a greater
tax rate of 27%, above our previous estimate of 22.3%. Finally, we are
raising our price target for PXLW from $36 to $50, which represents a 16x
price-to-sales multiple on our new 2001 revenue estimate. |
