word from VLSI:
Just talked with Sunil Mehta at VLSI.
He basically said that end market demand for handsets is strong as measured by their market research, but that component demand is week because many of their customers are cutting their inventory, some in half. This, for two reasons:
a) 'as a result of the asia crisis putting pressure on everyone to be more streamlined/competetive'. he says most of their customers are moving toward a just-in-time inventory model.
b) product transition to GSM handsets, which we knew about.
***VLSI is well positioned in GSM, right?
My concerns:
1. This sounds like at least two quarters worth of downgrades and this makes VLSI's discount to growth rate much less attractive.
ie: they've basically said they'll miss next quarter by at least 0.14, (next qtr estimate of 0.33 minus last year's 0.19 = .13, and the said they'd be below that, so 0.14) plus I'd guess we'll get some more of this next quarter.., I'll guess half as much: 0.07. total reduction in earnings estimates should be at least 0.21 for the year. current year estimate: 1.67, minus 0.21 = 1.46, and makes the year-to-year growth rate 12%. At a PE of 12, price would be ~17.5.
2. If most of their customers are moving to JIT inventory this will put additional pressure on VLSI. So they'll be doing shorter production runs I would think, which could hurt margins.
On the upside, as a whole, I'd say JIT could make VLSI/semi's less volatile as we wouldn't get the blow out quarters where everyone is stocking up, and then the warnings while everyone is
stocking down..., like now.
I think I'll wait till at least 19 to cover my short. I'm not so sure I want
to switch back to long though.
Upside factors: a) this bullish market. b) amat has come out and
said that their book-to-bill is below 1 and people havn't been that
concerned...., perhaps people will look past this 'inventory correction'.
TGIF!
-Kevin |
