VTSS: Vitesse Semiconductor Message Board

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Technology Stocks : VTSS: Vitesse Semiconductor

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From: A. Edwards	1/28/2001 10:06:25 PM
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Who will be the Ravens in the comm-IC space during the ongoing inventory correction? Merrill Lynch's research team compiled its diagnosis on inventory issues following PMCS December quarter results. Synthesizing the reports from the various comm-IC and communications equipment companies, we make the following observations: 1) Access end markets were weaker than Core and MAN. We believe that this is due to the weakness that the CLECs are seeing in the capital markets, which are big consumers of Access/Edge type equipment. We note that some CLECs also seem to be having challenges in proving out their business models. 2) North America was weaker than Europe and Asia – which is related in part to the weak demand from North American CLECs. 3) Companies with a higher proportion of new programs did better than companies with a higher percentage of established programs. Since new programs at customers typically do not have a chance to build inventory, it follows that they are less subject to an inventory correction. Noting these points, we would further observe that some companies may be better positioned to absorb some of what we believe is a pending inventory correction for the entire sector. These include: * AMCC and VTSS: Which are exposed to the metropolitan area network (MAN), and are ramping some newer high-speed programs. We note that both did see some changing customer order patterns due to excess inventories – AMCC with its MMCN chips selling into Cisco’s Arrowpoint web switch equipment, and VTSS with shipments to Lucent. * TXCC: Last year TranSwitch invested in its European sales effort, which paid off this quarter as a weaker North American market (10% sequential growth in 4Q00) was offset by strength in Europe (30% sequential growth). Also the company saw strength from its ATM products which are shipping into new programs such as the Siemens DSLAM which is being deployed by Deutsche Telekom. We note that ATM revenues increased by 71% sequentially for TXCC, while T/E products declined by 1% sequentially.

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