Wizard, good question and while there are certainly no guarantees in life and I am the last one to ever say "it will never happen", my response is PMCS is positioned better than most semi cos to maintain higher margins due to:
1. Its overwhelming dominance in a highly complex niche market. Phy layer involves analog and digital functions and is not easy to engineer. Older S/UNI products are indeed feeling pressure from Integrated Device, Cypress and Dallas clones but PMCS is already well on its way with new S/UNI products. PMCS has been known to cut prices aggressively in older products to maintain mind and market share. Once established, they simply continue to upsell new products.
2. The fact that PMCS is fabless gives a great COG advantage over most highly capital intensive semi cos.
3. Design wins. 164 in 3Q1997, 200 in 4Q1997, 178 in 1Q1998 LOCK them in for the next two-five years. Now all of these will probably not come to fruition, but with time to market so important to the vendors, they will have to have an awfully good reason to switch out and lose steam for a second source product.
4. PMCS has repeatedly guided the Street to 68-72% margins. Every Qtr, they blow this away. As they ramp up volume in the future, their margins should at some point come down a little. But their product pipeline is so rich and diverse, new higher margin chips always seem to come along.
5. As an example, the new Spectra (w/LU) and Freedm (w/CSCO) are flying off the shelf -I'm sure these are higher margin than some of the S/UNI products
6. Compared to ALTR,XLNX and LSI, it looks like the networking environment is making the transition to ASSPs or merchant chips. The evolution from PLD to ASIC to ASSP is occurring and PMCS is a big winner as a result.
Bottom line, PMCS is subject to the same cycles as other semi cos but they seem to be executing very well in terms of replacing older lower margin products with newer higher margin products. And with their design wins a record levels, the future looks much the same.
Regarding VTSS, I have no idea why its valued higher. Although if you look, it is not at the premium it once was. VTSS is valued at 38X C1998 and 30X C1999. PMCS is valued at 32X C1998 and 28.5 C1999. Perhaps everyone's fascination with GaAs gives them a premium. I do know they are dominant in the SONET OC-48 space, but beyond that, have not done that much work on them.
Bulldozer |
