Barron's this week--Scott Black on LSI
Black: One last one. Another controversial stock, but
relatively cheap. LSI Logic. The stock is under 20-19
7/8. There are 144 million shares, a $2.87 billion market
cap. Hard to believe, but it actually has some book
value: $11 a share. So it is at 1.8 times book. The
goodwill is nominal, about 20 cents a share. The
company has $645 million in cash -- and that's after
doing most of the spending for their new fab in Oregon.
The business now does about $1.25 billion in revenue.
[LSI Thursday reported '97 diluted net of $1.12 a share
on revenues of $1.29 billion.] The new fab will take
them out four or five years, and will sustain about $3
billion in corporate-wide revenues. They only have to
spend about $300 million this year and the DD&A
[depreciation, depletion and amortization] will run $240
million. This won't be a terrific year. We have them up
10% in revenues, at $1.43 billion. Operating margins will
be only 15%. At the prior peak, in 1995, they had 25%
operating margins. Normally gross margins are 50% but
as the new fab comes on the DD&A will knock down
the gross margin five-six percentage points for the whole
calendar year. It translates into about $1.10-$1.20 in
earnings for this year. The big push comes in '99. You
get some restoration of the margin. As they start filling
the new fab, earnings go to $1.85-$2. The stock is
selling at roughly 10 times earnings two years out. They
are the dominant player in ASIC -- application-specific
integrated circuitry. In terms of gate counts, they can put
400,000 gates on a piece of silicon the size of your
fingernail. They are the only independent ASIC
manufacturer that has a 0.25 micron line width, going to
0.18. IBM can get to those line widths internally. But
that is it. Right now, 20% of the business is Sony and a
lot of it is PlayStation. But they are spec'd into a lot of
different products. The digital video disc, the digital
camera, direct broadcast satellite with the MPEG and
JPEG compression chips.
Samberg: PlayStation is the question.
Black: Whether they'll be in the next version -- Sony
hasn't gone on record yet. But it seems likely. LSI really
has the best solution. If you look at the other ASIC
companies, like VLSI -- I have gone out to see them. I
wasn't impressed. Their line width is still at 0.5 and 0.6.
Their die size is terrible. They don't push the envelope.
In pure ASIC, there is really no competition for LSI.
Q: Thank you, Scott. |
