Headline: Integrated Dev. Tech: Diversification News Mixed
lehman.com
Author: M. A. Gumport, CFA 1(212)526-5368/T. Berg -5276
Rating: 2
Company: IDTI,ALTR,AMD,INTC,MU,NSM
Country: COM CUS
Industry: SEMICO
Ticker : IDTI Rank: 2-Outpeform
Price : $13 1/4 52wk Range: $15 1/2 -9 Price Target: $16
Today's Date : 01/29/98 @ 11:25 AM
Fiscal Year : MAR
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EPS 1997 1998 1999 2000
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: 0.11A 0.02A 0.02A 0.06E 0.06E 0.25E 0.25E
2nd: -0.13A@ 0.03A@ 0.03A@ 0.09E 0.09E 0.30E 0.30E
3rd: -0.55A@ 0.03A 0.03A 0.15E 0.15E 0.30E 0.30E
4th: 0.03A@ 0.03E 0.03E 0.20E 0.20E 0.35E 0.35E
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Year:$ -0.54A@ $ 0.11E@ $ 0.11E $ 0.50E $ 0.50E $ 1.20E $ 1.20E
Street Est.: $ 0.10E $ 0.11E $ 0.72E $ 0.62E $ -.-- $ -.--
@-Includes: FY2Q97 $-0.08 inventory write down, FY3Q97 $-0.48 restructuring,
FY4Q97 $+0.01 nonrecurring, FY2Q98 $0.01 after tax net of bad debt reversal,
foreign exchange loss and charges related to marketing of C6 mpu.
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Revenue (1997) : $537.2 Mil. Proj. 5yr EPS Grth : 6.0 %
Return On Equity : -5.9 % Dividend Yield : 0.0%
Shares Outstanding* : 89.5 Mil. Book*/Price to Book: $8.06; 1.64x
Mkt Capitalization* : 1185.9 Mil. P/E FY98; FY99 : 120.5x; 26.5x
Net Cash per Share* : $2.22 Convertible : Yes
Disclosure(s) : G,C, A
*Includes convertible as equity
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** MIXED NEWS ON IDTI'S DIVERSIFICATION PROGRAM; CLEAR LOGIC ANNOUNCEMENT
LAST WEEK A DISAPPOINTMENT BUT RECEIVING 1ST REPORTS OF A FAVORABLE RECEPTION
FOR IDTI'S X86; EPS PROJECTIONS UNCHANGED; ON BALANCE, STILL BELIEVE IDTI IS A
BETTER PLAY THAN COMMODITY MEMORY PRODUCERS; $16 1 YEAR TARGET MAINTAINED.
*****************************************************************************
STOCK VIEWPOINT: MIXED NEWS NEAR TERM BUT STILL OUR TOP FORMER MEMORY
STOCK: Diversification is IDTI's key strategic focus. For the moment,
diversification is a drag on EPS (start up operations probably cost $0.06 in
EPS for Dec. FY3Q98), but diversification should allow IDTI to grow in excess
of 20% in the upcoming year with improved margins. In that regard, we are
disappointed to report that one of IDTI's most promising diversification
efforts (Clear Logic; ALTR-$33-NR substitute parts) is on a slower ramp than
we anticipated. But another (Centaur; x86) is among the beneficiary's of
AMD's-$19 3/4-3 volume shortfall, and that positive should more than
compensate. Meanwhile, in April, a graphics accelerator is scheduled; IDTI
also is introducing specialty memories for ATM switches. WE CONTINUE TO
BELIEVE THIS PORTFOLIO OF PRODUCTS WILL BE VERY WELL RECEIVED AS THE YEAR
ADVANCES, AND WE ARE MAINTAINING OUR $16 1 YEAR TARGET.
THE BAD NEWS: CLEAR LOGIC WILL TAKE AN EXTRA YEAR TO RAMP UNLESS IDTI COMMITS
MORE FUNDING SOONER. Last week IDTI officially released their Clear Logic
product line. As expected, IDTI's Clear Logic subsidiary is offering drop in
replacement parts for chips made by ALTR. The Clear Logic parts are
programmed with a laser and can be delivered in a matter of days in quantities
as few a 1. The parts promise to be much faster and ...(Cont'd)
IDTI Page 2
lower cost than the ALTR parts they replace. The bad news is that the initial
family that Clear Logic targets is the ALTR 8K, a line we size at just $15
mil. per quarter. We believe 8K sales peaked at $24 mil. per quarter almost a
year ago. We had anticipated Clear Logic to target the 7K family ($74 mil. in
quarterly sales). IT IS UNCLEAR TO US HOW LONG IT WILL TAKE CLEAR LOGIC TO
REGROUP AND FOCUS ON LARGER OPPORTUNITIES, BUT OUR TARGET OF $10 MIL. IN SALES
IN DEC. FY3Q99 (AND $18 MIL. FOR FY99 OVERALL) NOW LOOKS VERY OPTIMISTIC. WE
WOULD CUT THOSE NUMBERS IN HALF.
THE GOOD NEWS: 1ST FAVORABLE CUSTOMER REPORTS ON IDTI's CENTAUR X86. We are
receiving first reports from customers. These third tier clone makers (and
key vendors into the PC upgrade market) are positive. IDTI's reception has
improved due to ongoing volume problems at AMD. Despite the perceived tough
competition posed by INTC-$82 1/2-3, it appears well priced parts are well
received. In that regard, we were surprised to learn recently that NSM's-$27
3/4-2 Cyrix averaged at least $65-70 on its MediaGX (sold exclusively to
Compaq) last quarter, roughly a 20-30% higher ASP than we expected. OUR
MODELS INCLUDE $67 MIL. OF CENTAUR SALES IN MARCH FY99, AND WE BELIEVE IDTI
COULD WELL BEAT THAT BY 50%.
ON BALANCE, WE CONTINUE TO FAVOR IDTI AS A BETTER PLAY ON THE MEMORY MARKET.
We are skeptical of short term memory move in memory prices which has pushed
MU-$34 1/2-4 sharply higher. Still, if commodity prices really are beginning
to improve, IDTI's SRAM business and other core operations, now running flat,
should see a benefit. Meanwhile, WE SEE A STRONG CORE OF UNDERLYING VALUE IN
IDTI'S NEW BUSINESS VENTURES WHICH SHOULD ALLOW FOR HIGHER LONG TERM GROWTH
AND PROFIT MARGINS.
BUSINESS DESCRIPTION: Leading fast SRAM, specialty memory, and high speed
logic chip supplier with a position in RISC microcontroller/ microprocessors.
Increasingly targeting communications markets (50% of sales) and other new,
high value added proprietary segments.
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Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the
past three years a public offering of securities for this company. B-An
employee of Lehman Brothers Inc. is a director of this company. C-Lehman
Brothers Inc. makes a market in the securities of this company. G-The Lehman
Brothers analyst who covers this company also has position in its securities. |
