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Technology Stocks : Vitesse Semiconductor
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To: Dan Spillane who wrote (425)1/30/1997 2:20:00 PM
From: Robert G. Harrell   of 4710
 
Dan,

I wish you would elaborate on your bullishness about VTSS. I've been impressed by your analysis of MRVC and assume that because of your knowledge of the networking field, you see sales to the various networking companies that will justify this lofty valuation.

Apparently VTSS fills a niche that no one else currently does. Let's put aside the silicon vs GaAs issue and assume for the foreseeable future that GaAs chips only will meet the requirements. What are Vitesse's products that are used in networking and what networker's product do they go into and how do your projections of various networking product sales reflect on Vitesse's sales.

My guess is that you have a rough idea of how much Ascend, for example , will sell of the product that uses a certain Vitesse chip and therefore can project how many of our chips Ascend might use. This is the kind of analysis/projection that I'm sure many of us would like to see. (Si-Shark, if he hasn't bailed out yet and is still around, may also have the knowledge to make projections like this.) Some of the regular posters on the CUBE boards do this kind of guesswork/analysis on a regular basis and it really helps non-techies like me to get a handle on the numbers.

I'm getting real nervous with this stock selling at a price/sales ratio around 14. (If my calculations are correct, our beloved MRVC is selling at less than half this rate.) I would have sold Monday at 55 1/8 if I hadn't been called away from my computer at just the wrong time. If I'm understanding the company's current circumstances correctly, they are manufacturing at nearly 100% capacity and won't have new facilities for quite some time. If this is correct, then it seems that they can only grow sales in the interim by changing the sales mix toward more expensive chips. Is this where the networking related sales are taking us? If so are their prices enough higher to keep the sales and bottom line growing at a fast enough pace until the new fab comes on line to justify the current evaluation?

I hope you or someone can shed some light on this for me. I have some technical trading questions for some of the traders which I'll post later.

Thanks in advance for your always excellent input.

Bob
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