Re: Growth rates
You make several very good points:
1) Semis are entering about a 2 year boom cycle - Couldn't agree more, although I actually believe it will be at least 3 years;
2) Line width shrinks lead to a large increase in die per wafer and reduced PLD prices - Already underway, with the shift to 0.25-micron just the start and the prospect of 0.18-micron offering even more of the good stuff;
3) Customers choosing design flexibility and time to market - This has always been the marketing strength of the PLD vendors, and reduced price premia should help, not hinder this move; and
4) Moderate levels of sequential growth lead to large annual growth rates - Right again, and my published XLNX model has revenue growth rates of 36% for F00 and 28% for F01.
So why do I end up with lower growth rates than what you're describing?
First of all, let me again stress that a 23% growth rate for the longer term is pretty impressive.
Secondly, the same cycle analysis that leads me to forecast a substantial uptrend generates a weakness beginning in late C2002 that is likely to affect C2003. Now it may seem a wee bit ludicrous in April, 1999 to be talking about such things, but as the XLNX five-year forecast now goes out to March, 2004, the next cyclical softness needs to be incorporated in the discussion. You might want to consider XLNX as a 35% grower between periods of 5-10% growth (and I believe the record matches this fairly well). Averaged, that's not too far from my 23% number. It's just my contention that it's not intellectually rigorous to use either extreme as a valid descriptor.
Thirdly, let's all agree to never use 1995 as a validation for any thesis concerning the semiconductor industry! When ALTR was demonstrating those impressive Q/Q growth rates, it was within the context of lead times on some of its parts stretching out as far as 52 weeks. I can't begin to imagine the contortions that the sales and marketing people had to go through to explain why customers should use PLDs to enhance their time-to-market and, oh-by-the-way, you'll have to wait a year for your parts. My head tells me that there should never be another period for the industry like 1995, but the sinking feeling in my heart says it's as inevitable as water flowing downhill. However, just because the buyers go crazy doesn't mean that we investors should get sucked into in the maelstrom. I tend to believe that cyclicals and growth cyclicals should experience some P/E compression as earnings move above long-term trends.
Now, having said all this, I will confess that I tend to be conservative. I believe that I am one of the few sell-side analysts who has spent time as a portfolio manager, so I have what is probably a heightened sensitivity to the preservation of principal. I had a Strong Buy on this stock at $16 up to $23 and a Buy up to $27, but feel no compulsion to flog it at $50 - I'll let someone else have that privilege! - Tad LaFountain |
