Hello Judy,
On ANAD and VTSS, I can't say I would invest in either company as most of the
easy money has been made on these stocks. VTSS is currently the stronger of
the two from a business model perspective if not a valuation one mainly because
most of its sales are in the telecommunications infrastructure business. In this market
cost is not as important as reliabliity as the cost of servicing the equipment far
exceeds the parts cost. One of VTSS's strengths is also it weakness. They
use standard silicon manufacturing equipment to make their parts.
So customers designing Vitesse ASIC products can use industry
standard CAD tools (including those offered by Cadence, Mentor Graphics,
Synopsys and Viewlogic) . The result though is that their yields are lower than
some of the proprietary processes used by other manufacturers.The difference
in the prices has to do with the perception of the more stable
earnings for VTSS. Their advantage may be temporary though as
even infrastructure vendors are under pressure to improve margins.
I know that this is the case at NT for their PCS infrastructure division
as the margins for this product line are less than some of their
traditionals product lines.
The GaAs field is quite fragmented right now with different players
fighting for different segments of the market. Some of the players are
ANAD, VTSS, AHA, CLTK, Fujitsu Microelectronics Inc., ITT Corp.,
Motorola Inc., Raytheon Co. Rockwell International Corp. and
TriQuint Semiconductor, Inc.
I am not up to date on the different proprietary processing methods for
manufacturing GaAs parts but given the long list of manufacturers
that I found there does not appear to be that big a barrier to entering
the industry. These companies have been able to thrive because
they were there to fill niche markets. Their markets are now more mature
and the focus of their customers going forward will be to reduce
costs to increase their own margins. As a result margins going forward
should contract for most of these companies. The small number of customers
for each of these GaAs manufacturer means the customer has great
pricing leaverage. Given the amounts of money at stake, spending a
few million dollars to change your production line for a new supplier's
part becomes cost effective. As a result , whoever has the better
technology (such as 3.4 volt parts) or the best price with acceptable
quality will get the contract. This may have been one of ANAD's
problems this quarter. In order to keep margins high, these GaAs
companies will need to aggressively find new applications in
emerging technologies. Part of the problem with these companies right now
is the some of these new technologies are not being deployed as fast
as anticipated or fast enough to keep income growing at the rates
of past quarters.
Here are the critical details from the 10K's:
ANAD
What they do:
ANADIGICS, Inc. ("ANADIGICS" or the "Company") is a leading supplier of
radio frequency ("RF") and microwave gallium arsenide ("GaAs") integrated
circuits. The Company's products are used to receive and transmit signals in a
variety of high volume communications applications in cellular telephone systems
and personal communication systems ("PCS"), in fiber optic communication systems
and in cable ("CATV") and direct broadcast satellite ("DBS") television systems.
The Company designs, develops and manufactures its integrated circuits in GaAs
semiconductor material that allows the integration of numerous RF/microwave
functions which cannot be easily integrated in silicon-based circuits. The
Company's high frequency integrated circuits can typically replace 30 to 100
discrete components, permitting manufacturers of end products to reduce the size
and weight of their products, increase power efficiency, improve reliability,
reduce manufacturing time and cost and enhance overall system performance.
Product lines:
Power Amplifiers for wireless communications - the Company's major customers for
wireless communications products are Ericsson, Nokia, Nortel and
Qualcomm PE.
Transimpedence amplifers for WDM (wavelength division multiplexing),
cable television distribution, asynchronous transfer mode (ATM)
data communication, and data transmission and related products.-
the Company's major customers for fiber optic products include AMP Inc.,
Hewlett-Packard Co., Lucent and Nortel.
Integrated circcuits for set top boxes and cable modems- The chip set
has been designed into tuners by General Instrument and Komatsu
Murata Manufacturing Company, Limited and in cable modems
by Intel Corp., Bay Networks Inc. and 3COM Corp.
Integrated line amplifiers for repeaters-the Company's principal customer
for this amplifier is Scientific-Atlanta, Inc.
DBS(direct broadcast satellite) products-customers for DBS products
include Continental Microwave Technology, Inc., Grundig Microwave
Technology Ltd., Pace Micro Technology plc, Philips Electronics N.V. and Smile
Communications, Inc.
Proprietary Manufacturing ptocess:
The Company has developed a GaAs depletion metal semiconductor
field effect transistor ("D-MESFET") process that it uses to
produce all of its products. By using ion implant variations, the Company can
optimize performance and yield, allowing it to produce, for example, high
linearity, low-noise, receiver integrated circuits or transmitter integrated
circuits with high power and efficiency.
The competition:
While competition in all of the markets for the Company's current products
is intense, the basis on which the Company competes varies by product.
Competitors in the wireless market are entrenched suppliers of discrete receiver
front-end devices such as Fujitsu Microelectronics Inc., Mitsubishi Electric
Corp., Motorola, Inc., Philips Electronics N.V. and Siemens AG; discrete hybrid
power amplifiers suppliers such as Fujitsu Microelectronics Inc., Hitachi, Ltd.,
Matsushita Electric Industrial Co. Ltd., Mitsubishi Electric Corp. and Philips
Electronics N.V.; and GaAs integrated circuit manufacturers for receiver
front-end or power amplifiers such as Raytheon Co., Rockwell International Inc.
and TriQuint Semiconductor, Inc. The Company competes in the wireless market
generally on the basis of product performance, size and price.
In the fiber optic markets, ANADIGICS competes with other GaAs and silicon
integrated circuit manufacturers, generally on the basis of product performance,
reliability and price. Principal competitors in this market are Analog Devices,
Inc., Philips Electronics N.V., TriQuint Semiconductor, Inc. and Vitesse
Semiconductor Corp. as well as many end-user product manufacturers who design
and fabricate their own systems. In the cable television and DBS markets,
ANADIGICS' integrated circuits compete primarily with manufacturers of discrete
components. In these markets, the Company competes on the basis of price and
product performance, specifically as they relate to the ability of its GaAs
integrated circuits to replace a large number of discrete components. In many
cases, discrete components are designed into the end products, and many
potential customers may therefore be reluctant to adopt the Company's products.
Manufacturers of discrete components include Fujitsu Microelectronics Inc.,
Mitsubishi Electric Corp., NEC Corp., Philips Electronics N.V. and Siemens AG.
Competition from other GaAs integrated circuit manufacturers which include
Raytheon Co. and Fujitsu Microelectronics Inc., has begun to emerge in the DBS
market
Most of the Company's competitors have significantly greater financial,
technical, manufacturing and marketing resources than the Company. Increased
competition could adversely affect the Company's revenue and profitability by
causing it to reduce prices or by reducing demand for the Company's products.
Sales By Customers:
The Company receives most of its revenues from a few significant customers.
Sales to the Company's five largest customers in each of the past three years
accounted for 61%, 67% and 60% of net sales in 1994, 1995 and 1996,
respectively. General Instrument, Ericsson, Qualcomm PE, Nokia and Nortel
accounted for 16%, 16%, 12%, 10% and 6% of 1996 net sales, respectively. The
Company's operating results have been materially and adversely affected in the
past by the failure of anticipated orders to be realized and by deferrals or
cancellations of orders as a result of changes in customer requirements.
Sales to customers located outside North America (based on shipping
addresses and not on the locations of ultimate end users) accounted for
approximately 80%, 68% and 65% of total net sales for 1994, 1995 and 1996,
respectively. The Company expects that revenues derived from international sales
will continue to represent a significant portion of its total net sales.
According to the conference call ANAD has 15 percent of the GaAs business.
63 percent of its sales comes from wireless. Approximately 40, 30 and
20 percent of its wireless sales comes from parts for CDMA, GSM and
TDMA respectively (specically power amplifers for handsets).
*******************************************
VTSS
Vitesse is a leader in the design, development, manufacturing and marketing
of digital GaAs ICs. The Company's products incorporate its proprietary H-GaAs
(high integration gallium arsenide) technology to produce high-performance ICs
primarily for telecommunications, data communications and automated test
equipment (ATE) systems providers. The Company believes H-GaAs technology
provides significant advantages over silicon-based IC technologies in addressing
the combination of speed, power dissipation and complexity requirements of these
high-performance systems providers. In fiscal 1997, sales of
telecommunications, data communications and ATE products represented 52%, 22%
and 22%, respectively, of the Company's total revenues. The Company's major
customers include Alcatel, Credence, Ericsson, Lucent, Schlumberger, Seagate,
Tellabs and Teradyne.
Product lines:
Fiber optic applications designed to the SONET/SDH and ATM standards use
data transmission rates of 155 MHz, 622 MHz, 2.488 GHz or 10 GHz. The Company
believes that SONET/SDH transmission systems installed by network providers
generally operate at 2.488 GHz and above. The Company also believes that
silicon-based approaches are not practicable solutions at such frequencies and,
as a result, telecommunications systems manufacturers increasingly look to GaAs
solutions because of their requirements for high bandwidth.
The Company believes that CMOS silicon approaches are not practicable
solutions at the 1 gigabit per second or higher clock rates used in the Fibre
Channel and Gigabit Ethernet standards. The Company believes that its H-GaAs
solutions for these markets operate at lower power and greater performance
margins than competing ECL and BiCMOS ICs.
For high-performance ATE systems, the Company believes that CMOS and BiCMOS
silicon ICs are too slow and that the high power dissipation in ECL silicon ICs
limits their integration capabilities. The Company believes that the low power
dissipation and high complexity of the Company's H-GaAs ICs, which permit
systems to be built with fewer ICs, are well-suited for the increasingly
demanding requirements of present generation ATE equipment.
Manufacturing Process:
The Company's proprietary manufacturing process utilizes industry standard
manufacturing equipment. This enables the Company to employ developments in
silicon manufacturing technology to continue to improve minimum feature size,
dimension control, deposition and etch capabilities.
While the Company's process technology utilizes standard
silicon semiconductor manufacturing equipment, aggregate production quantities
have been relatively low and the process technology is significantly less
developed than silicon process technology used by competitors. This leads to
overall yields lower than levels typically achieved in the silicon process. The
Company expects that many of its current and future products may never be
produced in high volume.
Sales By Product:
Telecommunications products accounted for 52% of the Company's total
revenues in both fiscal 1997 and fiscal 1996. In fiscal 1997, substantially all
of the Company's sales in the telecommunications market were for SONET/SDH
applications. In fiscal 1997, the Company's significant telecommunications
customers, each of which purchased at least $100,000 of the Company's products,
included Alcatel, Ericsson, H.Y. Associates, Lucent and Tellabs.
Data communications products accounted for 22% and 8% of the Company's
total revenues for fiscal 1997 and fiscal 1996, respectively. Vitesse has
developed a line of Fibre Channel products for this market, which consist
primarily of transmitters, receivers and transceivers. In fiscal 1997, the
Company's significant data communications customers, each of which purchased at
least $100,000 of the Company's products, included Cisco, IBM, Newbridge
Networks, Seagate, and Sequent.
ATE products accounted for 22% and 24% of the Company's total revenues for
fiscal 1997 and fiscal 1996, respectively. Vitesse provides gate arrays and
custom products that offer a combination of high complexity, low power
dissipation and high speed for ATE. In fiscal 1997, the Company's significant
ATE customers, each of which purchased at least $100,000 of the Company's products,
included Credence,Hewlett-Packard, H.Y. Associates, Integrated Measurement Systems, LTX,
Schlumberger and Teradyne.
The Company's ten largest customers accounted for approximately 77% and 75%
of total revenues in fiscal 1997 and fiscal 1996, respectively. In fiscal 1997
and fiscal 1996, sales to Lucent accounted for 20% and 25%, respectively, of the
Company's total revenues, and sales to H.Y. Associates Co., Ltd., the Company's
Japanese distributor, accounted for 22% and 11%, respectively, of the Company's
total revenues.
Competition:
The high-performance semiconductor market is highly competitive and subject
to rapid technological change, price erosion and heightened international
competition. The telecommunications, data communications and ATE industries,
which are the primary target areas for the Company, are also becoming intensely
competitive because of deregulation and heightened international competition,
among other factors. In the telecommunications market, the Company competes
primarily against other GaAs-based companies such as Triquint Semiconductor and
the GaAs fabrication operations of systems companies such as Rockwell. In the
data communications market and the ATE market, the Company competes primarily
against silicon ECL and BiCMOS products offered principally by semiconductor
manufacturers such as Fujitsu, Hewlett-Packard, Motorola, National Semiconductor
and Texas Instruments, and bipolar silicon IC manufacturers such as Applied
Micro Circuits Corporation and Synergy Semiconductor Corporation. Many of these
companies have significantly greater financial, technical, manufacturing and
marketing resources than the Company. In addition, in lower-frequency
applications, the Company faces increasing competition from CMOS-based products,
particularly as the performance of such products continues to improve.
Competition in the Company's markets for high-performance ICs is primarily
based on price/performance, product quality and the ability to deliver products
in a timely fashion.
PS: You might want to check out Clint's post on this thread. |
