Here is part of Rhonda Brammer's "Sizing Up Small Caps" column in the 12/8/97 edition of Barrons. Note the contrast between ESST CFO who will not comment on whether earnings will be met and CUBE's CFO who indicated in a press release a couple of weeks ago that CUBE would. Also note that price drops have moderated lately according to the ESST CFO
FROM BARRONS:
The largest company on the list is Fremont, California-based ESS Technology, a leader in audio chips for PCs and, more recently, video CD-player chips, sold mostly in China. For a spell, this firm grew like gangbusters. Sales jumped from $33 million in '94 to $226 million in '96. Earnings, meanwhile, excluding a one-time charge for acquired R&D, soared from $8.4 million, or 22 cents a share, to $52 million, or $1.25 a share.
This year, however, because of ferocious price-cutting in audio chips as the old ISA-based line of chips matured, ESS will be lucky to earn 65-70 cents a share.
"Pricing was very tough," sighs John Barnet, ESS's chief financial man, "much tougher than we expected." But the drop in prices has moderated lately, he notes. And he expects margins to improve as ESS ships the new generation of PCI-based audio chips. What's more, he's clearly excited about prospects for ESS's new line of video chips. Slated to be shipped in early '98, these are among the first video chips to support new standards recently approved by China's Ministry of Electronic Industries.
ESS has about a third of the audio-chip market and a 50% share in video chips. The latter is no small feat, considering the company shipped its first units in the second quarter of '96.
Barnet won't forecast earnings -- he's obviously gun-shy after two disappointing quarters -- but he hints the company could beat the Street's estimate of 61 cents a share in '98. "We hope to grow earnings," he says, "absolutely."
Meanwhile, the stock is 9 and change, down from a record 39. It sells at about twice book. ESS is debt free and spends 12% of sales on R&D. |
