Barrons cont: Some Adaptec watchers think the management change signals
the beginning of a turnaround at the company. John Rossi, an analyst
with Robertson Stephens, lifted his rating on the stock following news
of the management change.
Rossi sees several reasons for optimism. For one thing, he expects the
company to cut back on costs, in particular refocusing and trimming the
R&D budget, which has been hovering in the vicinity of $100 million a
year. He figures Adaptec will pare back its current roster of about a
dozen development projects to no more than four.
He also expects Adaptec to benefit from a cyclical recovery in the
disc-drive business, and from a pickup in server demand with the coming
debut of Microsoft's Window's NT 5.0 operating system.
Moreover, Rossi reckons that Adaptec could benefit from the depreciation
of the Korean and Japanese currencies, which has made disc drive makers
in those countries more competitive. Drive makers in both Korea and
Japan, he says, generally outsource controllers and other parts that
U.S. drive companies produce in house.
The current quarter, Rossi concedes, may be the ugliest yet for Adaptec,
and will likely include some restructuring charges. But he thinks the
company could return to profitability in the December quarter. Rossi
figures Adaptec will earn 44 cents a share in the March 1999 fiscal
year, and at least 70 cents in calendar 1999.
David Bernstein, managing director of Westhill Group, a Huntington
Beach, California, investment banking boutique, thinks Adaptec will have
to move quickly to mend its ways - or risk having a smart buyer come
along and fix things for it. Bernstein notes that Adaptec exited the
June quarter with $682 million in cash, almost $6 a share, or about half
the current stock valuation. Book value is about $7.60 a share.
Bernstein argues that Adaptec could attract a buyer. He suggests Intel
or 3com might be interested, and Rossi adds National Semiconductor and
Advanced Micro Devices to the list of potential acquirers
Alternatively, Bernstein says, Adaptec could do a large stock
repurchase, perhaps in the form of a Dutch auction. The company recently
reinstated an already authorized 10 million share repurchase plan, but
Bernstein envisions something a little more dramatic.
(end of article) |
