The tech stocks have finally caught up with the biotech valuations reached last June. I've listened to a half dozen conference calls and they all say the same thing: revenues dropping, pricing pressures. Accordingly you have three classes of stocks. The net nets, stocks trading at around cash value (some below) , where the collapse is well known. Typically these companies have cut costs to the bone, have breakevens that are at "normal" (not boom) demand levels, thus would have huge cyclical bottom line growth if demand ever recovered. These companies are burning up cash on the balance sheet, but the restructurings to this depression environment is largely behind them. There are even some Red Herring 100 names on this list: CIEN, SCMR, CPST. Other highly regarded technologies in the net net class are OPMR, ACTI, NUAN, KEYN, and OPWV (trades at about 50% of cash). All these stocks have been the victims of Johnny Come Lately broker downgrades. Pay special attention to Merill Lynch downgrades as their timing is especially bad.
The next class are the still profitable companies even in this depression. Revenues are in decline but are typically still above breakeven. Most of these companies are undergoing layoffs and survival cost cutting measures. Some of these were the high flyers and Red Herring 100 companies that once sold at 5-10X enterprise value. This conference call on SYNA yesterday is fairly representative of what's happening in our economy. Couple more in this genre are CRUS and TIBX (waiting for them to sell below $5 on margin calls), and RNWK. SFA at $10 would be a great level.:
biz.yahoo.com hit conference call
SYNA a highly regarded Red Herring company is the leader in touch pads and human interface for mobile computing. They are still marginally profitable, and actually generated cash of 3 million in the last quarter when the whole tech economy collapsed. The market cap is 140m, but they have 74 in net working cap, mostly cash, so they aren't going to disappear soon like a lot of other companies. Sales are running at 100m, and in norm conditions they would be in an explosive growth mode. Company is not giving guidance at all, but my sense is flat top line, and a scramble to keep bottom line stable. They have a large R&D budget and thus could cut there, which would be a tough management call. The competition is under even worse pressure. Mkt cap 140-74 NWC= 66 enterprise value. This company only sells at .66 EV at $6.00 a share.
NVDA is another company in this class. They are the cateogory leader in 3d graphic processors necessary for all new state of the art PCs and workstations. The have also entered the game box market in a big way. All these markets are in depression or near depression, yet NVDA is still comfortably above operational breakeven. At 9.35 market cap is 1.42b. There is 835m in cash on the balance sheet so the company isn't going away soon. Rec and inventory are at 405m, but the company signaled an inventory writeoff of about 40-50m. Current liabilities and debt are 730m, so I calc a NWC of 460m (about $3.00 a share). That's an enterprise value of only 960m. The company is signaling a decline in sales to 450m a qt, or 1.8b a year. EV to sales is only .54. As a measure of how this company performed even in tough times (4/01-4/02), consider that gross profits for that period were 634m. An EV (984) to normalized GP (634) gives some clues as to the incredible leverage in this stock should the depression stabilize some.
The third class are the pigs. There are fewer and fewer still around. One is CSCO still trading at about 2.6EV to revenues. In this environment and still waiting for the slew of broker downgrades and the fact that it is still overowned, CSCO is headed for single digit stock price, and that IMO (and low $30's on MSFT) should mark the end of the tech stock price adjustment |
