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Technology Stocks : Semi Equipment Analysis

SOXX 301.15

-1.2%

Dec 31 4:00 PM EST

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To: Donald Wennerstrom who wrote (14306)	4/2/2004 11:46:11 AM
From: Return to Sender	Read Replies (1) of 95657

From Briefing.com: 10:01AM Silicon Image (SIMG) 12.42 +1.77: Silicon Image raised Q1 & Q2 revenue guidance after the close on Thursday. The designer of semiconductors for high bandwidth communications applications pegged Q1 revenue at $34.5-35.5MM (+39.8-43.9% Y/Y) vs. prior guidance of $32.1-33.0MM and Reuters Research consensus at $32.94MM. Q2 is expected to come in at $36.2-39.1MM (+48.8-60.7% Y/Y) vs. prior guidance of $33.7-36.3MM and consensus at $35.01MM. All three product segments are exceeding expectations. Management had previously stated that the company's visibility is at approximately 85%, which suggests management was either being conservative with initial guidance and/or growth accelerated. Management initially forecasted Consumer Electronics (32% of sales) growth of 12-20%; PC Display (30% of sales) growth of 5%; and Storage (28% of sales) growth of 5-10%. License (10% of sales) revenue was expected to grow 3-14%. SIMG shares are, based on our inverted EVA / DCF model, priced for sustained upper 30% revenue growth from C06 assuming steady Y/Y improvement to 20% operating margin. Operating margin expectations are consistent with management's long-term target of 18-20% with upside possible depending on license revenue contribution. Implied growth moderates to lower 30% range assuming 25% operating margin. Q4 operating margin, excluding amortization and stock based compensation, was 7.2%; GAAP operating margin was (17.0%). Shares trade at the high end of range compared against direct comps and at a premium to the semiconductor group. The following table shows price multiples and Y/Y growth rates for SIMG compared against peers in the semiconductor group.Company P/SG Ratio P/OPG Ratio P/S Y/Y Revenue Growth TTM 2004E 2005E TTM 2004E 2005E Silicon Image (SIMG) 3.5 (48.4) 6.8 5.3 4.2 26.8% 40.9% 25.6% Analog Devices (00C) 4.2 26.4 8.4 6.8 5.6 22.6% 31.0% 21.0% Genesis Microchip (GNSS) 1.5 (160.4) 2.6 2.6 2.2 12.6% 9.6% 19.5% National Semiconductor (NSM) 2.5 29.6 4.4 4.1 3.4 10.2% 17.5% 21.5% Pixelworks (PXLW) 2.5 (190.1) 5.6 4.2 3.4 37.3% 33.8% 24.0% ATI Technologies (ATYT) 1.6 31.9 2.7 2.2 1.9 13.7% 33.6% 13.4% Broadcom (BRCM) 4.1 (20.6) 7.6 4.4 5.1 48.7% 49.6% 16.2% nVidia (NVDA) 1.8 51.8 2.4 2.1 2.0 (4.5%) 10.7% 7.7% STMicroelectronics (STM) 1.9 61.3 3.0 2.5 2.2 14.6% 21.9% 12.3% Texas Instruments (TXN) 3.0 40.8 5.3 4.1 3.6 17.3% 27.7% 14.7% Trident Microsystems (TRID) 6.3 (81.2) 7.0 6.9 4.9 (31.6%) 0.3% 41.8% Semiconductor Components 2.8 54.9 4.5 14.7% P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of March 26, 2004. **P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of March 26, 2004. Shares are likely to attract investor support near-term as SIMG is enjoying strong revenue momentum from a number of recent design wins and the company is expanding its sales team. But we think upside is limited given high revenue growth and margin expectations, and above average valuation unless management materially accelerates revenue growth near-term. We would wait for at least a 15-20% pullback before revisiting name. We would continue to accumulate Trident Microsystems (TRID 16.00). TRID shares have risen almost 21% since we highlighted the company in Story Stocks on March 17, 2004, when we noted TRID owns approximately 77-78MM shares or 0.5% of United Micro Electronics (UMC 5.17) common stock and the company's market valuation understates the value of TRID's intellectual property and operating assets on a forward basis.--Ping Yu, Briefing.com

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