IRF and VLSI Part II of II.
This is a continuation of post 14395.
VLSI
Business description: VLSI Technology designs, manufactures, and markets Application Specific Integrated Circuits (ASICs) and systems on a chip. They have one of the most advanced manufacturing technologies in the world in which they can produce ICs at a size of 0.20 microns. The company's new product offerings include a GSM chipset that reduces cellular telephone size, cost, and power consumption; the Vega VMax chip that extends digital cordless communications into real data applications; and the OneC GSM chip that gives mobile phone manufacturers the ability to customize their products and get products to market faster than their competitors. VLSI will also be the sole design and manufacturing source for a custom data security processor chip to be included as a standard element in Divx digital video disc players from Digital Video Express.
Target markets: Wireless communications, Networking, Consumer Digital Entertainment, Advanced Computing
Wireless Communications: digital cellular phones, digital cordless phones, wireless LAN, wireless local loop, GSM, CDMA
Customers: DSP Communications, Ericsson, Matsushita, Motorola, NEC, Nortel, Philips, Lucent, Samsung, Siemens
Networking: Local area networks: ethernet, wide area networks: ISDN, ATM, xDSL
Customers: Alcatel, Ascend, Bay Networks, Cabletron, Cisco, Compaq, DSC, Fujitsu, Lucent, NEC, Newbridge, Nortel, Siemens, Tellabs, 3Com
Consumer Digital Entertainment: Satellite and cable technology, digital video and telecommunications, set top boxes for cable and satellite digital TV, Digital Video Disk players, cable modems, game platforms
Customers: General Instrument, LGE, Matsushita, Nokia, Philips, Pioneer, Samsung, Scientific Atlanta, Sega, Sony, Thomson Consumer Electronics
Advanced Computing: Workstations, server, disk and tape storage systems
Customers: Allen-Bradley, Apple, Digital Equipment Corp., EMC, Hitachi, Hewlett Packard, Hughes Network Systems, IBM, NCR, Philips, Real 3D, Silicon Graphics, Storage Technology, Stratus
Liquidity
Cash, cash equivalents, A/R: $376,482,000 ($8.23/share) ($4.02 in cash)
Inventory: 52,402,000 ($1.15)
Total current assets: 517,241,000 (11.31/sh)
Valuation
Sales last 12 months: 686,461,000 ($15.01/share)
Stock price/Sales = 1.10
Book value: 516,931,000 ($11.30/share)
Stock price/BV = 1.46
Shares outstanding: 45,748,000
A few comments: The second half of the year has historically been stronger than the first half for VLSI and analysts are predicting that this will happen again in 1998. The company generated 71% and 63% of their annual earnings in the last two quarters of 1995 and 1997 respectively. The data for 1996 is not meaningful since the company took an extraordinary loss of $2.49/share that year to close their San Jose wafer fabrication facility. The facility was closed because the San Antonio facility provided more state of the art manufacturing capabilities and they also signed a contract for production of wafers with a Malaysian firm.
At a valuation of 1.1 x sales and 1.4 x book value, VLSI is trading far below the valuations of many other semiconductor companies. As reported by I/B/E/S, earnings estimates are down to 9 cents for the June quarter and 23 cents for the September quarter. In my judgement, analysts have cut the estimate for the September quarter too much and VLSI will likely beat that number. The company earned 38 cents and 41 cents in the September quarter of 1995 and 1997 respectively and given the growth in VLSI's target markets, I think they will easily beat 23 cents in September 1998. It is likely that analysts will raise their estimate for the September quarter later this year.
Technical analysis: VLSI has support on the weekly chart at 16 1/4 (lower weekly bollinger band) and that price held last Friday as the stock made a new 52 week low at 16 3/8. The stock is oversold with the daily stochastic at %K = 8 and %D = 14. The DMI is also indicating that the stock is near an extreme with the +DI=2, -DI=36, and ADX=66. The last time the DMI reached an extreme like this, the stock bottomed and rallied from a low of 18 3/4 to a high of 25 3/4 over a period of sixteen trading days. I'm certainly not predicting a 7 point move from Friday's close of 16 1/2, but I think the stock could easily recover to 19 1/2 - 20 1/2 in the next few weeks. |
