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Technology Stocks : PMC-Sierra (PMCS) - moderated -- Ignore unavailable to you. Want to Upgrade?

To: Eric L who wrote (28)	10/11/2000 9:24:05 AM
From: SJS	Read Replies (1) \| Respond to of 469

From Merrill Lynch: _________________________ Yesterday, Lucent (LU, $31.38, B-3-1-7) announced that it would likely report September quarter revenues and EPS of $9.3-$9.4 billion and $0.17-$0.18, versus Merrill Comm Equipment team estimates of $9.4 billion and $0.27. * We believe that Lucent's issues are company specific for several reasons: 1. Lucent is late to market with the latest optical networking equipment, and is playing catch-up to its largest competitor - Nortel. 2. Our checks indicate that demand is still strong for its Nortel (NT, $60, B-1-1-7) products. 3. Lucent's microelectronic's business posted an impressive 50% YoY growth rate, which suggests that overall market demand for communications equipment is still robust. The point is more convincing when you consider that Lucent Micro has a 25% exposure to its own under-performing systems and optical businesses. * We expect the comms-IC sector to be weak based on the Lucent announcement. We would view the weakness as an opportunity to become more aggressive buyers of those companies with little exposure to Lucent's problem businesses. Companies most impacted by the announcement include: * Applied Micro Circuits (AMCC, $178.69, D-1-1-9) - has only 5% exposure to Lucent, and 35% revenue exposure to Lucent's biggest competitor, Nortel. We believe that Lucent's mis-execution is translating into market share gains for Nortel, which should actually benefit AMCC. We would use weakness in AMCC due to the Lucent announcement as a particular opportunity to become more aggressive buyers of the stock. * Vitesse Semiconductor (VTSS, $78.63, C-1-1-9) - has about 18% exposure to Lucent, and supplies it with OC-48 and OC-192 components. We believe that VTSS has the most to lose if Lucent continues to stumble at the high end. Vitesse's exposure to Lucent falls with every quarter, though, and Lucent's various difficulties have not prevented VTSS from growing * Transwitch (TXCC, $56.69, C-1-1-9) - has about 13% exposure to Lucent, split evenly between the Ascend business (data and access) and Lucent optical business. We believe that TXCC is supplying into Lucent products that are seeing success in the market. * PMC-Sierra (PMCS, $171, C-1-1-9) - has about 15-20% exposure to Lucent, split between the Ascend business (data and access) and Lucent optical business. The extent to which PMCS should see its business impacted is minimal.