cc notes -
1) Visibility - Near term visibility is still poor, but there are signs that there may be a pick up in orders for GSM products within a month or so. However, they have little visibility into inventory levels at their customers.
2) Revenues - Next quarter revenues are expected to be flat to moderately down from this quarter, but earnings are expected to be moderately up given that they are cutting overhead costs. Revenues for the year are expected to be about 10% down from last year, which, given that this Q was down 15% and next is expected to be down approx 20% (?) implies that Q3 and Q4 should be very near last year's Q3 and Q4.
3) Explanation for revenue drop Y/Y. The big shortfall in revenues this quarter compared to the year ago was in Computing, which dropped 45%. Thus, they used to make up around 25% of revenues, and now make up closer to 17% (the 17% and 25% are my numbers, reverse engineered). Communications was down 3% overall, but that was entirely due to GSM weakness - DECT, TDMA and networking were all up Y/Y. The drop in digital entertainment was 10% and was due to a drop in STB's - games were up, but not enough to offset the drop in STB's.
(By reverse engineering some of their numbers, I come up with their revenues this quarter are: 45% wireless, 23% networking, 17% computing, and 15% games.)
4) New products and customers for design wins:
a) The new GSM chip combines the baseband processing with the DSP and should allow 500 hours of standby or 7 hours of talk. Volume shipments of this chip (the OneC) should start in Sept, and they have a design win with a major Japanese customer.
b) They recently had design wins with their TDMA chipsets and 2 design wins with major Japanese companies. Volume shipments are expected in late 98 and even more in early 99.
c) For DECT they sell to just about every player - Phillips, Lucent, Seimans, Ericsson, ... .
d) The new CDMA chip combines the baseband and DSP, and will be sampling this quarter (Side note - Japan is set to start CDMA service country wide in late '98, and China just opened up their telecom market to CDMA.).
e) They recently added Lucent, TelLab(?) and Cabletron to their networking customers.
f) For STB's they just had their first design win for an MPEG-2 decoder. (Note: Historically they have sold primarily mux's etc.) Also, they are currently the only manufacturer of the DIVX chip which will be used by 5 different DVD box makers.
g) For those worried that they have lost Ericsson, they said they have had significant new volume design wins.
5) Technology - Currently all of they are shipping is three layer 0.35 micron, but some of their new wins are for 0.25 or 0.20 micron.
In addition to the data given above, it was also true that they appeared much more hesitant than in last conference calls. There were fewer hard numbers, and much more hedging. For instance, there was no explanation for why the cell phone makers seem to be doing fine Y/Y and yet they are expecting a 10% drop in revenues. If it were purely an inventory issue, then any growth should more than outweigh the inventory drop. (i.e. a 50% growth in handsets is much bigger than a drop in inventories from 4 weeks to 2 weeks (2 weeks out of 52 is only a 4% drop for a year although it is 16% of a quarter.)) This hedging made me much more nervous than any specific facts. Why can't analysts ask good questions which would shed illumination on such issues??!!
Clark |
