Richard, GaAs revenue is growing because of Internet and personal comms growth. Clearly these two markets still have a lot of growth left in them. The question is, Will GaAs continue to be the technology of choice for speed critical circuits in these applications? From a technology stand point GaAs has a number of advantages over silicon,
Firstly you can build some high Q circuits on GaAs that are not possible on Silicon. For this reason GaAs is being used in RF amplifiers, Modulators and Filters. This is an area in which RF Micro-Devics and Triquent specialize.
Secondly GaAs has a higher electron mobility than silicon. This means that you can, in theory, build faster circuits than are possible in silicon ( with the same feature sizes ). However GaAs Hole mobility is much slower than silicon so it means that most GaAs designs are done using Depletion Loads ( Just like old NMOS designs).
In digital applications most projections have Silicon speed increases flattening out at about 0.2 or 0.18 micron. This is because the speed will be dominated by routing capacitance. ( i.e. independant of transistor switching speeds ). Since routing in GaAs circuits uses the same methods as Silicon you can expect the same probelms. Silicon will be at 0.2 micron CMOS by the end of 97. So digital GaAs applications should disappear at about this time for everything except the ultra exotic applications where GaAs Quantum devices will be used.
VTSS specializes in three areas
1) Telecommunications Circuits (Sonet, Gigabit Ethernet, 10Gigabit opto circuits)
2) Data-Communications ( Fibre channel, SCI links )
3) Digital Asics
I think that the ASIC market will die for them within 2 years because they just wont have any advantage over silicon, and silicon will be cheaper. This does not mean that they wont continue producing old designs and making a lot of money from this. Data-Comms has a similar problem because these tend to be in more consumer type circuits they are very cost sensitive. I think that VTSS will have a hard time winning new designs in these markets in 98 and on.
Telecoms is a very different market, it is so regulated that once you are in an application you almost never get designed out to save costs. In this area VTSS can really make a killing if it becomes that defacto standard chip set for these applications.
Gigabit ethernet silicon circuits are being sampled at the moment. So they will probably start to dominate new designs about the middle of 97.
Based on the product niches that I think VTSS will hold on to I believe that their long term revenue growth will be around 35-40% pa.
I dont think that they will hold on to current margins so I would expect earnings to drop to under 20% of sales. If you think that this rates a 60% trailing P/E then BUY now while its low. I think that this rates less than a 30 trailing P/E. So I am still bearish in VTSS.
I think a new fab is necessary if they want to grow, however, a new fab adds lots of overheads that are initially covered by the existing FAb and existing products, this will cause decreased short term earnings.
regards
SI-Shark |
