Jay,
My understanding is that VLSI did win some CDMA designs in the third quarter. Other companies are looking at it. According to Sunil Mehta, the company doesn't usually publicize design wins. This is my understanding and I hope Jim will verify it.
Here's some balance sheet analysis
Cash and marketable securities decreased $29 million from $318.6 million at the end of June to $289.6 million at the end of September. Considering that the company bought back about $13 million in stock and $11 million in convertible subordinated notes, only about $5 million was drawn out of cash for operations. If you remove the $7.4 million charge, they were about $2.5 million cash flow positive. At the burn rate including the charge, just imagine how bad things would have to get before they use a large amount of cash! Keep in mind that VLSI did not suspend capital investments in plant and equipment and is on target to complete the $150 million upgrade to the San Antonio fab. They generated sufficient cash from operations to maintain their investment in plant and equipment and R&D, while only using about $5 million in cash during a quarter that produced the lowest revenues in several years. Once revenues increase, the company will generate huge cash excesses from operations and their earnings per share will increase dramatically due to cost controls and a reduction in the number of outstanding shares. For example, the company added about $110 million in cash during June 96 and September 96. They have only used a total of about $41.4 million during the last four quarters, and this was during an extraordinary downturn in semiconductors. There is no doubt that the balance sheet is in very good shape and VLSI is poised for rapid expansion once revenues pick up.
Inventory declined from $51.9 million at the end of June to $45.5 million at the end of September. The torpedo ratio, inventory divided by revenue, was 7.5%, in line with the company's historic average and 0.5% lower than September 96. This demonstrates that the company is managing inventory levels in an exceptional manner.
Receivables increased slightly from $88.6 million at the end of June to $90.0 million at the end of September. The torpedo ratio increased slightly to 14.9% from June's 13.6%. This is in line with the company's historic average and below the 16% from September 96. The company is also managing its receivables well.
Long term debt decreased from $172,500 at the end of June to $165,808 at the end of September. Obviously it is good to pay down debt and the company's debt to equity ratio remained constant, at reasonable levels.
VLSI's book value declined slightly from $12.08 at the end of June to $11.78 at the end of September. Based on conversations with Sunil Mehta, the company's assets are worth about $35 million ($0.75 per share) MORE than their book value. Land and buildings are carried at cost but are worth a lot more and equipment is depreciated faster than its useful life, so it is worth more than the depreciated value on the balance sheet. All things considered, the stock is trading well below book value and even further below the "true" value of the company.
The bottom line: With the stock trading just above cash/share and nearly 50% of book value, it is discounting a period of sustained losses and erosion of book value. That is PERCEPTION and may be far from REALITY. If you look at the company's ACTUAL performance, they earned 3 cents during a quarter that could very well mark the bottom in revenues for this business cycle. All indications are that revenues will increase slightly next quarter and even more next year. VLSI's break even point is approximately $125 million in revenue so even if revenues decline slightly next quarter, the company still won't report a loss. This stock is severely undervalued and short sellers will get burned. |
