To: Scrapps who wrote (2007 ) 8/17/2000 5:34:08 AM From: pat mudge Read Replies (2) | Respond to Someone commented on Fishman's history of conservative guidance. The following from today's Chase H&Q report indicates they agree:Higher target model introduced for the second quarter in a row. Management guided revenues to $785-$800 million in Q4 (Oct.) up 12% to 14% sequentially, and EPS in the range of $0.49 - $0.50. Clearly, this revenue guidance is conservative, given the fact that a substantial portion of forecasted October revenue is currently in backlog and the company has partial visibility leading into FYQ1-01E (Jan-01E). In fact, management stated that ADI should enjoy year-over-year revenue growth rates of at least 45% in FY01E (on top of 77% projected for FY00E). Importantly, management indicated the FY01E capex budget would fall in the range of $400-$500 million (up from $250+ million in FY00E and $78 million in FY99), highlighting the company's confidence in their bookings (up 30% qoq) and demand outlook over the medium-term. Management also introduced a new margin model and raised medium-term operating margin guidance another 500 bps to 35% up from previous guidance of 30%. 9Note: ADI reported 31.3% in July --- Q3). Management expects to attain higher operating margins through a combination of gross margin expansion and realization of operating leveral over the next several quarters. Our estimates assume an average operating margin of 29.7% in FY00E and 33.7% in FY01E (vs 16.7% in FY99).Why is ADI growing so fast? We believe ADI is one of the best-positioned companies to benefit from strong secular demand in the communications and high-end digital entertainment markets. Analog Devices is one of the few companies with the products, technological know-how, and infrastructure required to provide critical enabling analog and DSP technology to high-growth communications and digital consumer markets such as xDSL, SONET/SDH, wireless infrastructure and DVD players. As a result of heavy R&D investments over the past several years, we believe ADI will materially benefit from the revenue ramp from new product introductions. Some examples of new product initiatives that are expected to ramp during the next year are:Othello chipset: ADI's direct-conversion radio chipset (Othello) for wireless handsets is expected to begin generating meaningful revenue in FY01E. In fact, the company announced on its conference call it has recently secured a major design win with a top-tier wireless handset manufacturer (approximately $75million annual deal beginning in mid-2001E.) Furthermore, management hinted that ADI should be able to attain similar design-wins with 3 or 4 additional wireless handset manufacturers in 2001E. Assuming $75 million in annual revenues per design-win. ADI will have the opportunity to generate an incremental $300+ million in annual revenue over the near-to-medium term. Optical components. Recently, ADI announced its intention to re-direct its MEMs technology to next-generation, all-optical switching components aimed at high-speed networking infrastructure applications (from accelerometers utilized by airbags in the automotive market). Currently, aDI is selling physical layer (PHY) and access control layer components for optical switches running at OC-48 and OC-192 speeds and iw working with market leaders such as Lucent, Nortel, and JDS Uniphase. As the SONET/SDH market continues to represent one fo the fastest growing endmarkets, we believe ADI can realize tremendous upsdie from its optical business (3% of sales in July). In fact. management also noted that its optical business is currently operating at a $100 million annual run-rate, with the opportunity to grow 2x-3x in FY01E.
