One More Piece
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10:06am EDT 30-Sep-98 Needham & Co. (Peter Dale 212/371-8300) ATRM VTSS AMCC MU
NEEDHAM MORNING RESEARCH SUMMARY
Needham & Company, Inc. (212) 371-8300
Equity Research Trading Desk
September 30, 1998 (212) 371-0312
800-843-4446
Equity Research Morning Summary
Aetrium, Inc. (ATRM/OTC)$4.75 FY Revenues (mil) EPS
Analyst: Theodore O'Neill,(212)705-0459 12/99E: $63.0 $(0.01)
Hold. 12/98E: $60.6/64.6 $(0.19)/(0.02)
ú As we reported previously, ATRM announced that its third quarter
results would be below analysts' expectations. It estimated that 3Q98
EPS would be in the range of a loss of $0.21 with an improved 4Q98.
ú The Company also commented on revenue saying that 3Q98 revenue would
be approximately $12 million. We have lowered our estimates according to
both Company guidance and consistent with our expectation of an increase
in bookings in early-mid 1999.
ú We continue to rate these shares a Hold based upon a near lack of
visibility in the coming quarters. We believe that investment in this
sector requires an investment horizon beyond our six-to-12 month rating
horizon.
Communications Semiconductor Industry: Impact of Northern
Telecom Revenue Concerns
Analyst: David Wong, (212)705-0314
ú We think that news from Northern Telecom's analyst day yesterday
caused concerns about Nortel's revenues. We do not believe that stock
price drops in Vitesse, PMC-Sierra, Level 1, and AMCC are warranted.
ú AMCC has high exposure to Nortel, with about 20% of revenues coming
from Nortel. Nortel is a customer of PMC-Sierra and Level 1 but we do
not think that it is an important customer in either case. About 3% of
PMC-Sierra's revenue are in sales to Nortel.
ú Vitesse (VTSS, $24.75, Strong Buy) sells almost nothing to Nortel.
VTSS's largest customer (at 20% of total revenues) is Lucent, which made
positive comments at an analyst's day meeting recently. We reiterate our
Strong Buy rating on VTSS.
ú PMC-Sierra (PMCS, $33.50, Strong Buy) and Level 1 (LEVL, $22.25,
Buy) sell, we believe, small amounts to Nortel. About 3% of PMCS's
revenues come from Nortel. We reiterate our Strong Buy on PMCS, and our
Buy rating on LEVL.
ú AMCC (AMCC, $13.56, Buy) has more exposure to Nortel than any other
company we follow. About 20% of AMCC's revenues are from Nortel. We
reiterate our Buy rating on AMCC, though we think there remains some risk
that the market could react negatively to the Nortel news.
EFTC Corp. (EFTC/OTC)$3.38 FY Revenues (mil) EPS
Analyst: John McManus, (212)705-0312 12/99E: $250.0 $0.50
Buy. 12/98E: $224.5 $0.40
ú Because of Hurricane George EFTC closed the Fort Lauderdale plant
and lost two days of production.
ú EFTC expects to lose more than a nickel in 3Q.
ú EFTC expects to earn less than $0.07 in 4Q and they will concentrate
on earning greater than or equal to $0.50 in 1999.
ú Our estimated book value is $7.85. Tangible book value is $4.60.
ENVOY Corp. (ENVY/OTC)$22.75 FY Revenues (mil) EPS
Analyst: Bernard Lirola, (212)705-0298 12/99E: $228.0 $1.47
Strong Buy. 12/98E: $179.0 $1.09
ú MCI Worldcom and America Online have agreed to reduce their intended
write off of in process R&D in connection with their recent acquisitions.
We believe that these agreements put additional pressure on ENVY to agree
to reduce its write offs taken in connection with its 1997 and 1996
purchases of NEIC and HDIC.
ú We are guessestimating that ENVY will only be able 1) to write off
about 15% of its original purchase prices, and that it will have to
amortize the remaining goodwill over a 20-year period.
ú We believe that the stock fully reflects the most likely worse case
scenario and should trade up when the cloud is finally lifted over the
next few weeks. Our 12-month price target is $36.
IEC Electronics, Corp.(IECE/OTC)$5.00 FY Revenues (mil) EPS
Analyst: John McManus, (212)705-0312 9/99E: $215.0 $(0.02)
Hold. 9/98E: $60.6251.3 $(0.07)
ú We estimate a loss in F4Q of $0.40-50 versus our old estimated loss
of $0.17.
ú IECE has a charge of $2 MM for the closing of the Alabama plant.
ú Breakeven level is $55 MM versus a revenue run rate of $40 MM. IECE
will have losses through at least F1H, maybe all of F1999.
inTEST Corporation (INTT/OTC)$4.00 FY Revenues (mil) EPS
Analyst: Theodore O'Neill,(212)705-0459 12/99E: $22.5/28.5 $0.50/0.93
Hold. 12/98A: $18.8/19.8 $0.38/0.55
ú As we reported previously, INTT announced that its third quarter
results would be below analysts' expectations. It estimated that 3Q98
EPS would be in the range of $0.03-$0.04. The Company also commented on
early 1999 by saying that revenue growth would be low.
ú We have lowered our estimates according to both Company guidance and
consistent with our expectation of an increase in bookings in early-mid
1999.
ú We continue to rate these shares a Hold based upon a near lack of
visibility in the coming quarters.
Micron Technology, Inc.(MU/NYSE)$31.63 FY Revenues (mil) EPS
Analyst: A.A. LaFountain, (212)705-0317 8/00E: $4654 $(0.03)
Sell. 8/99E: $3419/2805 $(1.10)/(1.06)
ú 4Q98 results above our estimate and Street consensus, with DRAM
revenue strength offsetting still-weak PC revenues. Lowered losses aided
by expense control and accrual reversal in PCs and firmer DRAM pricing.
ú Modifying F99 EPS estimate only modestly, although pending TI
transaction would penalize EPS by an additional $1.00-1.20. Instituting
F2000 estimate with profitability attained in second half of fiscal year.
Shares appear overvalued given earnings prospects.
ú Using a long-term revenue growth rate of 17% as a multiple on
estimated FQ3 EPS of $3.39 and discounting that future value at 20% gives
a current value of $20.77 and a 12 month value of $25. The potential
decline to this value justifies the Sell rating.
Network Appliance, Inc.(NTAP/OTC)$56.13 FY Revenues (mil) EPS
Analyst: Glenn Hanus, (212)705-0361 4/00E: $395.2 $1.21
Buy. 4/99E: $272.6 $0.86
ú NTAP continues to be on track to at least meet our revenue and EPS
estimate of $64.3 M and $0.20 for FQ2 ending October 31st. Product mix
toward high end systems should help support revenues and ASPs but
slightly lower gross margins sequentially.
ú New generation products are being well received and should account
for 50% of shipments in FQ2. Fibre channel will account for 80% of unit
shipments by the end of FQ2.
ú NTAP's salesforce should reach about 110 in F99, up from 70 at the
end of F98, below its stated goal of 140. We are comfortable that this
salesforce growth should enable NTAP to meet or slightly exceed our
estimates as salesforce productivity is improving and ASPs are trending
higher.
Sanmina Corp. (SANM/OTC)$28.00 FY Revenues (mil) EPS
Analyst: John McManus, (212)705-0312 9/99E: $952.0 $1.87
Strong Buy. 9/98E: $719.9 $1.44
ú Stock fell 3 points to $28.00 over concerns about slowing revenues
by Nortel for 1998.
ú Nortel represents 5% of SANM's revenues. Nortel percent of revenue
is declining as dollar amount has been increasing. SANM does backplane
and backplane assembly for Nortel; that business is unchanged.
ú Bay Networks, recently acquired Nortel, is a 2% customer. Business
at Bay Networks is solid. Total exposure thus is 7%, but the company has
seen no deferments.
ú We anticipate SANM will earn at least $0.38 for F4Q and $0.43 for
F1Q (DEC).
ú We are a buyer of SANM on this weakness; 12 month target price is
$45 - 50.
SpeedFam International (SFAM/OTC)$10.75 FY Revenues (mil) EPS
Analyst: Theodore O'Neill,(212)705-0459 5/99E: $123.6/141.7 $(0.46)/0.01
Hold. 5/98A: $185.3 $1.10
ú We are reducing our revenue estimates from $141.7 million to $123.6
million, and EPS from $0.01 to $(0.46), respectively.
ú The near-term order environment continues to be extremely weak.
While interest seems to be high, actual production orders for the Company
continue to be rare.
ú We believe that the November quarter will be sequentially down in
revenue, reflecting overall industry weakness. We continue to rate the
stock a Hold due to the extreme lack of visibility.
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