Khalil: The 3Q charge was mentioned in the initial press release, so this should not come as any surprise to the market. There is no question that the Symbios purchase has made LSI more of a "show me" stock. However, I think the only show me component of Symbios is the continued slump in the semi market. When the semi market begins to pick up, then the purchase of Symbios will be seen favorably. Thus, I don't think that the 'show me" period on this topic will drag on into the '99 earnings season unless we see a continued slump in the semi market. Why? There is some real talent at Symbios, and the value of the purchase could easily double within the next year. LSI got a great deal, and it won't take much for the market to take notice. As Tech Watcher has noted, there is very little overlap between the two companies. Not only does this lower the write-off, but it also allows LSI the option of spinning off Symbios under more favorable market conditions, should it decide to do so.
Take a look at some of the price to sales ratios of other chip makers and related businesses listed below, while keeping in mind that Symbios was bought at 1.2 times sales.
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Think about it. Adaptec, which is in the toilet is selling at a higher multiple. As you may recall, Adaptec was the company that was going to purchase Symbios until the government interceded. Furthermore, Adaptec's expertise is at the PC level not at the server level, which is where Symbios is concentrated. And fully one-third of Symbios's sales are in high end storage, which would command an even higher multiple. Micron is selling at 2.5 times the multiple that LSI paid for Symbios. Clearly, Micron does not manufacture the complexity of chip that Symbios does. The PLD makers are selling at 4 times the multiple that LSI paid for Symbios. And PLD makers are soon going to be competing with INTC and possibly "getting their heads handed to them", according to Wilf. QLogic is more of a pure play on Fibre Channel, and it deserves its rich multiple. As noted, Symbios does have expertise in Fibre Channel. Thus, Qlogic also hints at the future of LSI's success in Fibre Channel.
On a valuation basis alone, this is a tremendous deal that only could have happened because of the crisis in Korea. Without the crisis, this company probably would have gone for 1.5 times the price LSI paid, and that still would have been cheap since it was at a market trough. |
