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Technology Stocks : Vitesse Semiconductor -- Ignore unavailable to you. Want to Upgrade?

To: A. Edwards who wrote (2727)	7/13/1999 10:46:00 PM
From: A. Edwards	Respond to of 4710

Earnings comments from Merrill: Merrill Lynch Joseph Osha, Vice President July 13, 1999 Results on target - price objective raised Vitesse reported net earnings for its June quarter of $19.4 million or $0.24 per share, in line with our estimate. Net earnings were up 39% YoY and 10% sequentially. Revenues of $73 million were somewhat beneath our estimate of $73.8 million, and were up by 58% YoY and 9% sequentially. Our earnings estimate for the September 1999 fiscal year remains unchanged at $0.90, and we have raised our September 2000 estimate from $1.24 to $1.28. Our intermediate-term Accumulate and long-term Buy recommendation remain unchanged, and we are raising our intermediate-term share price objective to $82. Bookings robust, manufacturing ramp still going well Overall bookings at Vitesse continue to be robust, and despite the company's continued efforts to reduce backlog in the communications business we believe that backlog actually rose. Book-to-bill is no longer being precisely reported, but there we believe that the quarter finished up at a better level than the March quarter figure of 1.13. We also note that the company's manufacturing execution continues to be excellent, as production has ramped in the new Colorado facility without any problems. Interestingly, the company was able to support increased revenue and unit shipments without adding any wafer starts - improved yield at the new facility supported all the additional revenue. Vitesse indicated yesterday that it now believe that it is capable of supporting $600 million per year in gallium arsenide revenues, which eliminates the need for any additional capital spending until 2001. As Vitesse continues to ramp its fab, we expect gross margin to continue to improve at 63.4% for the current quarter the number beat our expectations. We think that number can move to 65% during the next four quarter, and being as Vitesse has its operating expenses well under control most of the improvement should fall to the bottom line. Margins from the CMOS products are reportedly in excess of 65% as well, and factoring all of that into our model added an additional $0.04 per share to our September 2000 estimate. We are reiterating our intermediate-term Accumulate and long-term Buy ratings. We note that the last time the company reported a quarter and highlighted its ongoing transition with Lucent, the stock dropped before moving to new highs. Any drop on this quarter's announcement should particularly be treated as buying opportunity as well.