Tom, ya should have waited. *L* Every time I think we've hit bottom they surprise me.
NEW YORK, March 18 - Moody's Investors Service lowered
the rating on Integrated Device Technology (Nasdaq:IDTI -
news) Inc.'s $184 million 5-1/2% convertible subordinated notes, due 2002, to B3 from B2.
The senior implied rating was lowered as well, to B1 from Ba3. The convertibles, which are
currently subject to redemption at a price of 102.75, may be converted at any time into shares of
common stock at $28.63 per share. The stock has been trading recently at about $6 per share.
The ratings outlook is stable. Moody's rating downgrade is based on Integrated Device
Technology's (IDTI) negative free cash flow over the LTM ended December 27, 1998, after
deducting estimated FY1999 capex of $110 million.
The company's substantial embedded production capacity will encumber the company with
significant additional capital expenditures going forward. Although IDTI has been managing a
product transition from a concentration in commodities oriented SRAM to high performance
proprietary products, its financial position has been weakened by the intense competition in its
remaining SRAM as well as low-cost x86 microprocessor businesses, which currently comprise
nearly one-third of the company's revenues.
Gross margins have fallen significantly below the 50% target set by the company.
While cash and marketable securities provide reasonable near term liquidity, an inability to establish
solid and sustained cash flows from operations could create some uncertainty with regard to funding
the maturing principal on the convertibles in three years.
The rating additionally reflects IDTI's heightened leverage resulting from its write-off of the excess
semiconductor fabrication capacity at its eight-inch Hillsboro, Oregon wafer fabrication facility,
completed in 1996 and principally dedicated to high cost process technology for SRAM (static
random access memory) and microprocessor production.
Ownership of this facility led to operating losses in FY1997 and in each of the three quarters through
FY1999Q3.
Recognizing that the cash flows generated by the sales of products manufactured in Oregon would
remain disproportionately lower than the cost of operating the facility for the foreseeable future, IDTI
elected to write down the carrying value of equipment at the facility and recorded an asset
impairment charge in FY1999Q2.
These developments, compounded by additional charges over FY1999H1 related primarily to the
company's closure of and exiting from its San Jose, California facility, eliminated the company's
entire retained earnings.
full article
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