FWIW, Charlie has been pounding (can you hear that feeble effort, I guess it is feeble due to dense fog) the table for Cube:
Two other semiconductor stocks that make specialty chips for the communications sector -- C-Cube Microsystems (CUBE:Nasdaq - news) and RF Micro Devices (RFMD:Nasdaq - news) -- have, in his view, been "beaten up too much and are good buys based on their likely upside over a six-month time horizon," according to Glavin. (Credit Suisse First Boston has provided investment banking services to Applied Micro Circuits, Centillium, C-Cube and RF Micro Devices.)
Applied Micro, TranSwitch and Centillium have wonderful fundamentals, but they are being treated by the market like "the proverbial baby that has been thrown out with the bath water," says the CSFB analyst.
Applied Micro, which makes chips in the high-speed opto-electronics area, has been the beneficiary of a trend toward outsourcing by makers of communications products. In addition, AMCC is increasing its market share with a number of recent "design wins," as Glavin puts it. Moreover, each one of these designs has a high dollar content now that AMCC has acquired two companies, Cimaron and MMC Networks, whose products help AMCC make better chips, thus improving margins.
TranSwitch sells chips to communications companies for their network infrastructures. The company has customers not only in the U.S., but also in Europe, where the infrastructure upgrade is slightly behind that in North America. European customers include Ericsson, Alcatel and Siemens (for the Deutsche Telekom buildout). Glavin has set a 12-month price target of $75.
Centillium, which makes chips for digital subscriber lines, has benefited from the intense global interest in this broadband service, says the analyst. (Still, it should be noted that, like cell-phone makers, who are seeing a sales slowdown, many DSL companies are struggling. TheStreet.com has addressed both subjects in many stories.) Because the company "offers leading chip solutions that have the highest density and that incorporate domestic and international standards," says Glavin, it has won design contracts from NEC, Sumitomo, Nortel, Lucent and Cisco. Centillium's stock currently trades in the $30s. Glavin hopes it will reach his $100 price target within 12 months.
C-Cube makes video compression/decompression chips that go into DVD set-top boxes and other applications. Meanwhile, RF Micro Devices makes radio frequency chips for wireless and broadband applications.
Like AMCC, C-Cube has benefited from the outsourcing trend -- in this case, the outsourcing of digital video chip production. As for RFMD, it is benefiting from growth in the wireless market, both handset and infrastructure. Also, the company is considered a leading provider of module solutions -- one-stop solutions for original equipment manufacturers (such as Nokia, which is RFMD's largest customer). According to Glavin, module solutions lower costs, accelerate time to market and increase performance.
Stock Pick
Favorite stock for next 12 months: Applied Micro Circuits
12-month price target: $115
Comment:
"We think AMCC will grow its revenues at least 75% in the next fiscal year, ending March 2002, to at least $935 million. But that's a conservative estimate. It's possible they'll climb as high as $1.1 billion -- double the expected March 2001 revenue of approximately $535 million, a figure that itself will be up 125% over the previous fiscal year. This will be contingent on economic conditions. Because of the higher dollar content per design win (margins) that AMCC acquisitions Cimaron and MMC Networks bring to the table, we think operating income will grow at an even faster rate than revenues -- more than 80% -- between fiscal 2001 and fiscal 2002."
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