VTSS sales up to LU
Article focusing on VTSS, but since it selling more, LU should be in good shape also.
Vitesse gives shareholders a rocket ride
By Cecily Fraser, CBS MarketWatch
Last Update: 6:12 AM ET Mar 30, 2000 Market Snapshot
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CAMARILLO, Calif. (CBS.MW) -- Investors have lit a rocket under Vitesse Semiconductor shares, drawn by the combination of a hot market for communications chips and haute technology.
The company's gallium arsenide chips are the kind of high-speed integrated circuits many telecom companies are using to build out the Internet.
Vitesse, French for "speed," has lived up to its name lately, more than doubling so far this year and hitting an all-time high of 115 11/16 on March 1. The stock got an added boost this week after announcing plans to acquire system-on-a-chip maker Orologic for $450 million in stock.
Vitesse shares have risen as much
as 120 percent so far this year.
"It's a real growth area they are living in," said Marc Klee, portfolio manager of the John Hancock Technology Fund which owns about 200,000 Vitesse shares and has about $3.4 billion in assets under management.
"The idea they are able to grow quarter to quarter, not just year over year, reflects a very strong underlying market. Plus the fact that they have been able to expand their markets by internal products and acquisitions."
And the high demand for its products looks set to continue for a while.
CEO Lou Tomasetta told CBS.MarketWatch.com Vitesse's upcoming second-quarter results are also tracking according to plan, and revenue is likely to come in at the high end of expectations.
"Quarter over quarter revenue will be up about 10 to 12 percent, and I think it will end up closer to the 12 percent," Tomasetta said.
Some of the chips powering Vitesse's market moves.
Tomasetta said the company is forecasting an overall sales gain of 50 percent for fiscal 2000. Revenue from communications is projected to surge 50 to 60 percent year over year.
In fiscal year 1999, Vitesse generated sales of $281.5 million. Net income totaled $69.9 million, or 84 cents a share.
In its first-quarter report in January, the company posted net income of $23.6 million, or 14 cents a share, compared to $14.6 million, or 9 cents a year earlier. The results were in line with analysts' expectations. See full story
Vitesse (VTSS: news, msgs) is headquartered in Camarillo, Calif. and employs about 850 people.
It competes with companies like Applied Micro Circuits (AMCC: news, msgs), which makes high-bandwidth integrated circuits, and Conexant Systems (CNXT: news, msgs), a maker of modem chips and other integrated circuits used communications electronics manufacturers.
Stepping on the GaAs
The properties of gallium arsenide allow electrons to move five to 10 times faster than they would through traditional silicon chips. That's important because of the explosive demand for data networks and bandwidth.
"As the markets have matured, our strategy has been to continue to enable higher performing markets and applications on the wired side of communications, like the fiber optic systems," said Tomasetta.
The gallium arsenide technology evolved as chip manufacturers looked for a way to build faster circuits and replace silicon in applications where speed was essential.
"That's what our invention was in the mid 80s ... to take this faster material and manufacture it in complex circuits on a standard silicon manufacturing process," said Tomasetta. "So that's what enabled us to get to market with parts where as complex as you needed to solve the problem, you could do it all on one chip, get all the transistors close together and make them faster" than conventional chips.
While gallium arsenide satisfies the need for speed, it's typically more expensive and harder to produce.
About 10 percent of the company's sales come from more conventional CMOS (complementary metal-oxide semiconductor) chips. Those devices are made with lower-power semiconductor technology, largely for use in personal computers.
CMOS product sales, which made up 5 percent of overall revenue last quarter, will be about 11 percent in the second quarter, he added. "We expect that to grow to 25 percent of our revenue over the next two years," he said.
Because Vitesse has been making gallium arsenide-based chips for some time, it's been able to develop cheaper manufacturing techniques. Tomasetta explained that Vitesse invented a way of taking gallium arsenide wafers and manufacturing very complex circuits -- million transistor circuits -- using the same kind of equipment used to make CMOS chips.
"Vitesse has been doing this for a long time and they have a more silicon like approach to the gallium arsenide manufacturing, said Nathaniel Cohn, an analyst at Goldman Sachs. "So they do make it somewhat more cost effective."
Lucent looms
Lucent Technologies, Vitesse's biggest customer, issued an earnings warning in January. Vitesse shares suffered, briefly, because the company is seen as being heavily depended on the widely held tech giant.
"Vitesse is sometimes less hardly regarded than many of its competitors," said Klee, citing the Lucent overhang.
"That has kept a little bit of a lid on the multiple of the stock, relative to its competition, and takes time to go away," he added.
Lucent makes up about 17 percent of Vitesse's revenue stream. The telecom giant (LU: news, msgs) purchases Vitesse chips for optical networking gear.
Still, analysts say the problems at Lucent don't reflect badly on Vitesse.
"When Lucent announced, they didn't carry any inventory of Vitesse," said Aalok Shah, senior research analyst at Pacific Crest Securities. "For Lucent, it was a question of demand, not supply."
Indeed, CEO Tomasetta said that Lucent seems to be doing better.
"From everything we can gather, they (Lucent) seem to have fixed -- or at least have under control -- whatever the manufacturing issues that prevented them from shipping as many OC-192 boxes (optical networking gear) that they have," he said. "Certainly the demand is there. We see that across our entire customer base."
A Vitesse employee inspecting high-speed chips.
Tomasetta said sales to Lucent will be up about 12 percent in the second quarter over the prior quarter, and up another 15 percent in the third quarter.
A good buy
A solid performance had led to endorsements from fund managers, who say that Vitesse is a good buy and at more reasonable valuations that other communications chip providers.
"Some of Vitesse's well known competitors have valuations that are very, very high. That's not to say that Vitesse is especially cheap, but relative to some of its competitors, it sells at a much more reasonable valuation," said John Hancock's Klee.
David Wilmerding, co manager of the Nevis Fund at Nevis Capital Management, said his firm has had a position in Vitesse since 1995 with a cost basis of 75 cents at its lowest point.
"As we look back on all of our investments that was one where we did it just the way you are supposed to, which is we waited and waited...," he said.
quicken.webcrawler.com
"Certainly the demand is there.."
What a nice sound.
Jack |
