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Technology Stocks : Vitesse Semiconductor
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To: Robert Talty who wrote (318)12/1/1996 11:47:00 PM
From: Clay Cunningham   of 4710
 
I agree that the gross profit margin is an important figure. I would
be interested to know how Vitesse's margin compares with its
similar size competitors. But Vitesse, like most other companies, has
earnings projections that it must live up to. Yes, many companies
would be better off spending their profits on research, etc. It is
certainly not helpful for Vitesse to have to pay about 33% of its
earnings to the gov't to cover its taxes--but that is the way the
'system' is set up to work.

I expect that Vitesse will have to expand its operations greatly before
its GMP improves anymore. Looking at the financials that I received
from Vitesse, I notice that the key employees of the company were
paid very low salaries (the president, himself, made less than
$150,000). If they had been paid the salaries one would expect,
Vitesse would not be showing much of a profit at all! The employees
made a killing on selling their option-related shares--and this expense,
of course, is not reflected in the revenue statement. Vitesse will
be in a tough position in the next year and a half. The bank that
loaned it money has a clause which prevents it from paying a
dividend for the next several years (not that it was ever planning to).
Vitesse was fortunate enough to issue its new shares when the market
was still in a bullish mode. I expect the market to fall hard in the near
future.
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