With thanks to John, here's that report:
Thought you might like to read this....From Lehman..
* We are raising our investment rating on LTX?s shares to 2-Outperform from
3-Neutral. After recent conversations with management we now believe that
the outlook for peak (calendar 2002) EPS is brighter than we had thought.
* The company?s Fusion tester product family is achieving high success in
winning new customers, and in providing expanded opportunities within LTX?s
existing customer base.
* An upturn is underway in the semiconductor test equipment market, and LTX
is beginning to benefit from it. This recovery in the industry, and at LTX,
should be sustainable given the need for advanced testers.
* LTX is well positioned for the emerging System-on-a-Chip opportunities.
There is an urgent need for testers for chips used in digital consumer
electronics, digital communications equipment and information appliances.
* We are raising our EPS estimates for FY00 from $0.42 to $0.48, and our peak
EPS estimate (CY02) from $0.77 to $1.10. Using our discounted EPS valuation
model, our new 12-month price target is $17 per share (up from previous $10).
REASONS FOR THE UPGRADE
There are four reasons for our upgrade:
(1) The Fusion tester family, critical to LTX?s long-term success, is
addressing more opportunities than originally expected. It is going after a
larger than anticipated market for systems-on-a-chip, and it is also seeing
interest from broad-line chip companies (i.e., those with logic, mixed signal
and SOC product families) that want to consolidate the number of different
test architectures that they use.
(2) As a result of this, LTX is adding to its list of customers, and to its
base of opportunities at existing customers. This is an important factor in
the company?s effort to rebuild share in the traditional mixed signal tester
market, and to consolidate a leading position in the system-on-a-chip tester
market.
(3) The cyclical recovery in semiconductor test equipment is beginning to look
increasingly more sustainable. It is difficult to ignore the strong order pace posted by
some of the large companies in the semiconductor test business.
LTX?s specific order pattern will depend in part on company-specific
circumstances (see the paragraph below), but we think the company will be a
full participant in this semiconductor test recovery.
(4) The story of the new, revitalized LTX has not been widely circulated yet.
Accordingly, the shares are among the most attractively valued of the small
market capitalization, semiconductor test & assembly companies.
NEAR - TERM ORDERS: NOT A REASON FOR THE UPGRADE
LTX has provided a wide guidance range for incoming orders for the July 1999
quarter -- $55 million to $100 million. This range had reflected the
possibility of winning large orders from key customers, along with the
uncertainty of the timing of those orders. We have stayed at the conservative
end of the range, with a $60 million estimate, down modestly from the record
$75 million recorded in the fiscal third quarter, but still very strong
compared to the company?s recent order trends. There may be some estimates
calling for higher order numbers. We think the company?s bookings will be
lumpy in the near-term, as acceptance of the Fusion tester family builds. We
have confidence that new record order levels will be achieved by LTX in fiscal
2000, but are not willing to project that this occurred in fiscal Q4.
SOME HIGHLIGHTS:
1. LTX CONTINUES TO ADD NEW CUSTOMERS. LTX? customer list is
focused, but it
contains the leaders in specialty logic, mixed signal and SOC manufacturers:
Advanced Micro Devices, Hitachi, Hyundai, LG Semiconductor, Lucent
Technologies, National Semiconductor, Philips, Samsung, Texas Instruments, and
ST Microelectronics. In recent months, the company has received sizeable
orders for its new Fusion tester from Texas Instruments and Infineon. LTX has
also picked up other major new customers and existing customer opportunities,
but is not yet at liberty to announce these.
2. THE RAPID ACCELERATION OF THE EMERGING SYSTEM-ON-A-CHIP
(SOC) BENEFITS
LTX. For more than two years the persistent message from LTX was that the
best opportunities in test lie in systems-on-a-chip. For a considerable
amount of time, the company was very much alone in voicing this opinion. At
the 1999 Semicon West show, systems-on-a-chip were an important theme at both
the wafer processing and the assembly/test sessions. In SOC circles, this
gives LTX a higher degree of recognition than might not be generally
appreciated.
It is important to note that although there is a close relationship between
SOC?s and mixed signal chips, these are two separate market opportunities.
Traditional mixed signal chips come in two broad varieties: 1) heavy digital
capability/light analog capability; and 2) Light digital capability/heavy
analog capability. In contrast, SOCs are characterized by both heavy digital
capability and heavy analog capability. This makes them particularly
difficult to test. These chips are being used extensively in advanced
generation consumer electronics, high speed local area networks, ADSL/HDSL
telephone networks, wireless communications equipment, and information
appliances.
3. THE VALUATION IS ATTRACTIVE FOR A SMALLER MARKET
CAPITALIZATION
SEMICONDUCTOR EQUIPMENT COMPANY. LTX?s shares trade at a discount
to the
company?s peers in the semiconductor equipment market (as measured by forward
Consensus P/E). In our opinion, LTX is a highly focused SOC tester company,
which can be viewed as an inexpensive way to play the fast-growing
telecommunications market. As a result, we believe that LTX? shares should
trade at a premium to this group. We think that the shares can also continue
to be driven higher by earnings per share revisions, as it reports financial
results over the course of 1999 and 2000. |
