Wiz: Trial lawyers need to contend with many witnesses who are experts in their field-- People who have superior knowledge, but who are essentially wrong in their conclusions. The sign that one is close to a kill is when the “expert” is unable to square away basic facts in response to the attorney's questions. Lawyers also use a trick known as “blasting away at straw houses”--wherein they create an argument that never truly existed or an argument that is not relevant to the point and then wail away at these arguments by claiming this was their opponent's argument”. Lawyers also need to know what set of figures will “Play In Peoria.” Or more to the point here, what will “Play On The Street”. When you start arguing about lawyers, DIVX, and other nonsense, you are creating your straw houses. Furthermore, your numbers will not under any set of circumstances “Play on the Street.” Once again, I will raise the simplest question to you that gets to the heart of the matter. It doesn't require an explanation of polynomials or any the other stuff that is meant to intimidate but is utterly irrelevant.
So let's first review what the issue is. The issue is the rate of growth for LSI Logic earnings the next three quarters that will require LSI to get to $2.1 billion is sales. You claim that “average” (which only in a later post did you define as a 15% growth rate for the year 1999) would put LSI at $2.1 billion. I claim that the $2.1 billion number would require a 35% growth rate for the twelve month period of 1999 The issue is not whether what either you or I believe the actual number will be. Indeed, I believe that LSI has a real shot at going above $2.1 billion, Rather, the issue is my charge that your “average” number of $2.1 billion is outrageously high.
Let me once again map out the facts. And maybe you can tell me where my flawed thinking is.
First of all I used the word pro rata not pro forma. The word was used in the context of the quarterly pro rated portion of your fantasized $1.85 billion which I divided by four to get $463 million. So you misread my post, but that's no big deal. Similarly, your exact quote from post #18656 is “And Corrigan said Dec. Q was strong. “, so despite your insistence that I misread your post, my cut and paste function says otherwise.
Now for the real issue.
The revenues for 4Q were reported at $445 million. That is the only full quarter for which there are hard figures in 1998 as they pertain to the combined revenues of LSI and the former Symbios. These are not Shane Forbes projected figures, but figures that reflect what actually happened. Figures that demonstrate Corrigan's vision for better or worse. Now one can work with those figures or Shane Forbes vision, or for that matter your late entry pro forma figures for the entire year.
However, the only real numbers to work with are what happened after Symbios was purchased and integrated into LSI. As any serious financial analyst who is not prone to hip shooting knows, pro forma figures for merged entities don't reflect such post purchase problems as the meshing of corporate cultures, redundancy, product line disposal, etc. With the exception of you, I know of no serious financial analyst who would rather take pro forma figures to do his calculations than hard figures that reflect the reality of what actually did happen post merger.
As any serious financial analyst knows; pro forma figures are notorious for being inaccurate indicators of a company's performance going forward in the coming year, with of course, the exception of a company that remained intact, but simply went from public to private. Thus the base I am using going forward is $445 million—the actual figures of LSI combined with Symbios for 4Q ‘98. (As an aside, I would also note that your posts make it very clear that you derived your numbers not from any pro forma figures, but from partial results of 3Q, but that sort of after the fact behavior is OK Thus, even you were originally acknowledging that the hard results of 3Q are what you were working with, and only in your most recent post did you come up with the meaningless pro forma figures.)
So reality is that for 4Q the number is $445. That is the only base to work from because it reflects the current corporate structure of LSI.
The reality is that in the sequential quarter (1Q '99), revenues grew 2.5% over the previous quarter to 456 million. This is where I got my 2.5%. Once again, no serious financial analyst would claim that the better number is the year over year number of 41%, (which merely reflects the Symbios purchase but not growth, which I will reiterate, is the topic at hand.)
Thus, for the second quarter of the combined LSI and Symbios entity, the growth rate was 2.5%. And to achieve the $2.1 billion that you deem “average”. LSI would need to see a yearly increase in sales of 35% over 4Q 1998, which was the first full quarter that LSI and old Symbios were combined. Since there is already a 2.5% increase in the books, this means that each of the next three quarters would need to improve by 9% sequentially in order to hit your so-called average. Thus, the overall increase over the only full quarter that reflects the combined Symbios LSI entity would be 35% in the following year.
If you wish to stand on your figures now, please go right ahead. It merely substantiates my point that the wizard is less of a wizard than he would like us to believe. Rather it was garbage in and garbage out.
Let's put it the key question to you this way Shane:
Would any serious financial analyst or investor use the real revenue numbers that resulted from a merger to form the basis of their projections for the upcoming year, or would any serious financial analyst or investor use pro forma numbers that primarily resulted prior to the actual merger of a company to form the basis of their projections for the upcoming year?
To answer the latter is of course ludicrous, but you are welcome to take a stab at it. (The only two minor reasons that I can come up with are seasonality, which barely applies, and the difficulty of bringing any new business on stream, which has some merit). To fail to answer this question is to “Strut, Strut” around like a chicken with his head cut off. Thus, I stand by my substance of my initial post in its entirety. Simply put, your numbers won't play in Peoria. And thankfully, they darn well won't play on The Street to the benefit of LSI longs. Bet dimes to dollars that The Street and LSI would see $2.1 billion in sales as a 35% gain not 15%.
This is not to say that I don't think that LSI will do great numbers this year.
Now a word about your little man's snit about LSI IR and my so-called wealth or whatever. My God Shane. For a moment I thought that I was seeing Governor Al Smith singing “The Bowry.” I mean talk about a populist—bring on William Jennings Bryan. The problem is that the average populist doesn't throw a hissy fit and threaten to not post again when someone legitimately and correctly criticizes the populist's numbers. Grow up Shane. There are a number of truly excellent posters on this thread, and while it's a far superior thread with you than without you, you truly need to sharpen your perspective with the arrival of the new talent over the past year or so. Your so-called conservative calculations that prove to be way off base need some serious refinement, and even more to the point clearly can be challenged as I have done. I have always recognized your premier contribution to this thread, and have even done so during the past few days. Moreover, I put you in the top echelon of SI contributors. But brittle prima donnas just don't last in the real world. Rather than criticizing Dipy for his selling strategies, you need to emulate him for learning how to take and give a punch without getting bent out of shape. Nevertheless, I would hire you in a “New York Second” to replace Erica Klauer the hot shot analyst who got out of LSI at what will prove to be its five year low. But her last name is Klauer and yours is only Forbes
As far as my relation with LSI IR is concerned, I have always found them to be honorable people. The first time I spoke with Diana Matley was in December 1995. Despite the huge beating that LSI stock was taking, she was gracious and informative. Usually, when I call they are busy and often take up to five days to return my call, and I don't know that they know what my shareholding is. The reason I get answers from LSI IR is that I pick up the phone, call, and I ask questions that are well prepared ahead of time and reflect the next level of knowledge that I have gleaned from sources, and I genuinely care about the company. Same things go for the retail sector, which is another primary interest of mine. Love to talk to the CFOs. They are the guys (and gals) from whom you can get the straight story. But the key is to develop relationships and stick with those relationships. They key is to spend more time listening for what's not being said and asking follow up questions, than trying to impress the person as to how brilliant you are.
Does this mean that I am in love with LSI? Somewhat, but I am also still deeply angered by the obvious leak of insider information this past August 18th. (I suspect that what happened though is that the info was tipped off by the fact that a conference call was scheduled, and the frustration of LSI is that this conference call was scheduled in response to shareholder complaints about lack of communication). Also, I always resented the “party's about to begin” remarks from Wilf.” And although he has toned down that sort of remark, I want to see him make good on his boast about the superiority of his CDMA chip. I mean talk about unbridled optimism. Having said that, I concede that the nature of a truly great entrepreneur like Mr. Corrigan is one of unbridled optimism. I mean this is a guy who got off the plane in '59, was told to go to the library, read one of the two books on transistors, and went on to form an industry. This guy is a first ballot Hall of Famer. (Which reminds me, I never responded to the goofy writing on this thread that Wilf should be replaced forthwith. The next CEO is obviously John Dahne, who will be a superb CEO, and who is being groomed for the job. If Wilf had been replaced, he would have only been replaced by either Dahne or another replacement, which would have meant that Dahne would have left. As it stands now, Ellie is the head of the most important single division and Dahne is the heir apparent. Thus, Wilf has done a superb job of managing any future transition.)
As for your other childish insults, I will only say that I attended Northwestern on a full sports related scholarship, and that my SI moniker is the name of a great golf pro who gave me my first set of golf clubs when I was an ten year old caddy. Until he was 92, my father who was a department store salesman until he was 87 would camp out by Wrigley Field in February to be among the first in line to get single game tickets for the Cubs. Hardly a wealthy background. Whatever money I have has been earned by my hard work and resilience.
Furthermore, I find it sad that you consider yourself a font of knowledge about LSI. That's arrogant self-serving nonsense. But I'll tell you what Shane. Here's a little bone that has not been verified by a second source, but has come to me from a reliable source that is not LSI IR, and it pertains to LSI components division, which is the one that is doing gangbusters. It's a lot better than Shane's goofy post this week of “I think there was capacity constraint in Q1”
My source says that the fab at Colorado Springs is bursting at the seems. They historically have had wafer starts of 2000 to 2200 per week and did ramp up to 2700 but management felt that the wip (work in progress) was getting too big and have scaled back to 2500. They will wait until the new tool sets get installed to initiate further increases. Each wafer is worth about 4k, there is 25 wafers in a pod. Since they are trying to get 2500 wafer starts per week, that is $10.0 million per week should they reach their completion. This is $130 million per quarter and that is $520 million per year. Management is telling customers "your lead time is 10 weeks before we can even start your product." The customer are saying we need them now resulting in some tendency for upward pricing pressures In short, there is a very strong probability of some upward surprise on the revenue side.
Might not The Wiz want to chew on these numbers for a change? And again that fab is part of the growing components division—
(By the way for those who don't know, the QDRO that Shane used in his last post attacking me only means Qualified Domestic Relations Orders—i.e. the woman gets the house in the suburbs, the kids, and the bucks, and the man gets to spend his remaining tip money in his city studio apartment with the trailer park bimbo he met in an AOL chat room). (Similarly, the IPR&D that Shane refers to in relation to the Symbios write off means Accounting for In Process Research and Development—the relevance of which has nothing to with whether Shane's figures are accurate portrayals of LSI revenue projections going forward.) Like a lot of stuff in his latter posts, it simply means that he wants to throw out a lot of jargon and expertise to hide the simple fact that indeed, his numbers are seriously out of wack, and that he doesn't have the testosterone to admit it. Indeed, most serious adults forget what a polynomial is by the time they grow up.
Nice comeback coming up with pro forma numbers after the fact, but that only gives you style points rather than substance. And it certainly obviates my vitriolic attack in the initial post, for which I sincerely apologize. But, in the absence of your responding to my question as to why pro forma numbers are better than hard numbers, I would say that this discussion is closed. It's been fun, and it really is good to see you back.
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