Mark,
Mark has made a persuasive case that the price will rise to
40-43 in 12-18 months,
Errrr, I don't think I have ! I am not saying it won't, but in order
for it to do so, four or five fundamental things all have to happen.
That's a lot !
If you want to play the optimism bit, I can give you an upside
scenario that suggests it could be a lot higher ! e.g. Historically,
ADPT has grown revenues by 44% per annum. The '98 numbers are likely
to be lower than the trend (sans Symbios), but the Symbios acquisition
plus some growth would put them straight back on target. In other
words, they could complete '99 with revenues of $2Bn+. Assuming
all the other ratios stay the same then that suggests $50+ for
<18months.
But if you want to play the pessimist, there is a very simple
scenario which hurts big time - i.e. Intel moves into the SCSI market.
Strategically this is something that would make a lot of sense for
Intel and would hurt ADPT big time (though not fatally). In the last
few years, Intel has had a real problem with filling its slightly
older fabs (the high margin CPUs are all made in the latest fabs).
Intel has progressively developed companion devices to fill its
excess (older) capacity - core logic, networking, graphics......
The only thing that it has to buy in before it can make the whole
motherboard is memory and specialist I/O. Imagine what would happen
to ADPT if INTC were to design SCSI into the core logic ?
If Intel were to make this move, it would be a double-edged sword.
First, sales would be lost to those systems no longer requiring
plug in controllers (not necessarily the high end of the market, but
painfull nonetheless). Second, SCSI periphals would proliferate which
would increase sales of the drive controllers. So, perhaps a more
frightening thought is if Intel designs FireWire into the core
logic as a high-performance disk interface........
The bottom line here is that there is presently a lot of uncertainty
about ADPT in the short term, and until this is resolved, nobody is
going to consider the current price a bargain. There is a LOT of
positives in the Symbios acquisition, and a lot of potential problems.
The situation is not helped by the lack of currently accurate info
about Symbios......
In the short term we need to understand -
Can ADPT raise the cash it needs to manage the integration ?
Will there be any stock dilution in the refinancing ?
Strategically, where does the new, bigger, ADPT see itself going ?
Is there any merit to the current stockholder lawsuits ?
Answer these questions satisfactorily, and the price will start
climbing again.
I suspect we won't have any clear answers for 2-3 months. That's
more than enough time for another market correction and a better
priced entry point.
Mark |
