ADI: The SHARCs are circling! Message Board

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Technology Stocks : ADI: The SHARCs are circling!

ADI 303.58

+0.5%

11:16 AM EST

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To: Jerome who wrote (630)	8/2/1997 1:43:00 AM
From: shane forbes	of 2882

Jerome nice questions! I checked into ADI quite a bit last year bought it at 15 (split adjusted and enjoyed a nice ride from 8/1 to 12/16/96. Got out at the time and got back in recently. So excuse me if some of this you already know. I've had to check my notes & other web sites to put this together. Hope it helps.) 1.) ADI IS a different kind of semiconductor company. Their SLIC business really has a stable industrial base not a PC base. No summer slowdowns for industrial users. ADI does a commodity business (commodity as in producing general purpose chips and tons of them as opposed to a few special chips) in these chips and it's a niche that they have to themselves (and a few others) that other companies have not targeted. Since it is a commodity business they have a wide customer base and do not face the "inventory adjustments" that you see with companies that do few highly specialized ASICs and ASSPs (LSI Logic, VLSI etc). So stability in SLICs and also a lesser dependence on the pc industry makes them different. (Note though that with the move into DSPs and ASSPs ADI will be more of a "semiconductor" stock that it is now. Maybe when DSPs become a major part of their revenue they'll move their reporting date to coincide with the other semis'!!!) 2.) As you may know with end-use stability comes less fluctuations in revenue which brings less fluctuations in earnings etc etc.. (Note that while other semiconductor companies' revenues got thrashed last year ADI's held up quite well.) So you may be right in that ADI is not as volatile as the average semi. But I do have my doubts (I'll check for you) since they are still a semiconductor company and a good part of a company's volatility ("beta") is industry based. Also I'll check in Value Line what their "earnings predictability" is relative to the other semis. 3.) Read this about how ADI expects to grow in the future: analog.com (In my previous post I used S&Ps 25% growth for DSPs - Fishman says 30-35%. This is the number that I like - it looks more than attainable for ADI.) 4.) My guess is that ADI is having a good 3rd quarter. Looking back in q4 FY96 they had their first sequential decline in EPS after maybe 16 or 17 quarters with sequential increases. Then EPS went from 0.25 in q4 FY96 to 0.23 in q1 FY97 to 0.25 in q2 FY97. (compare this "slowdown" with the MUs and LSIs) Considering that Zacks has 0.26 (as opposed to First Call's 0.27) I "think" ADI should meet this target. Hints: TXN reported excellent results in July and reiterated DSP growth prospects. ADI will do well in DSPs. (Remember also that last year they added quite a bit of manufacturing capacity and yet on around about 300 million made the 0.26 EPS - they now have slightly more shares.) Even if this q is bad (doubt it) next q should be very good with the new GSM chipsets. 5.) To learn about DSP and all its uses: dspwatch.com dspwatch.com You can also check out the Motorola, Texas Instruments and of course ADI web sites to search for "dsp" and of course: techweb.com Major uses as you know are modems and communications. Basically anything with an analog signal that you want processed cheaply and quickly will require a DSP. ------------------------------------------------------------------- Having said all these good things about ADI, the P/E is now 31. The last 3 years the P/E has maxed out at 26 (using S&P's report on ADI). Maybe it's the DSP effect for the expansion in P/E. Doubt it though - this should happen later. Think currently we have a bit of hype. On the other hand the stock smashed through its high of 29 and is basing pretty well around 30-31. A delicate balancing act that gets stronger and stronger each day the stock holds at or above this level. ------------------------------------------------------------------- $-)

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