From Briefing.com: Tech shares led the indices higher after opening the session modestly lower, lifted by strong housing data. December home sales came in at a higher than expected 6.9%, helping to restore confidence that the economy continues to grow at a healthy pace, providing support for continued revenue and earnings growth.
The Philadelphia Semiconductor Index (SOXX 539.81 +12.78) rose 2.42% while the Briefing.com Tech Index (BTI) increased 1.4%. There were no decliners on the SOXX. Among BTI companies, advancers led decliners 1.9:1, with advancers moving up 3.4% and decliners dropping 2.1% The Nasdaq Composite (IXIC 2153.83 +29.96) ended higher 1.41% after opening the session 0.2% lower.
After the close, Novellus (NVLS 40.25 +0.36) reported Q4 EPS of $0.07 on revenue of $226.511MM vs. Reuters Research consensus at $0.06 on $219.66MM; Texas Instruments (TXN 31.99 +1.02) reported Q4 EPS of $0.20 (excluding $0.07 from sale of Micron Technology shares and $0.02 from tax reduction) on revenue of $2.770B (+29.1% Y/Y) vs. consensus at $0.19 on $2.724B. NVLS issued cautious guidance. We have noted on the Tech Stocks page as well as in Story Stocks that many semiconductor capital equipment stocks, including NVLS, are priced for growth and margins that are unsustainable given industry outlook and dynamics. We would continue to swap out of the sector.
On Tuesday, Agere Systems (AGRb 3.32 +0.04), Brooks Automation (BRKS 25.50 -0.35) and Xerox (XRX 13.95 +0.32) report before the open, and Broadcom (BRCM 41.35 +2.33), Electronic Arts (ERTS 49.42 +0.29) and Flextronics (FLEX 17.77 -0.03) report after the close. Look for the Conference Board Consumer Confidence data at 10:00am ET.--Ping Yu, Briefing.com
6:09PM Monday After Hours prices levels vs. 4 pm ET: Following today's stealth rally that sent the Dow to its best levels since June of 2001, the after hours has assumed a more tentative tone. A handful of earnings warnings have also supported tonight's negative disposition, and led to profit-taking activity in tech issues especially. Presently, the S&P futures, at 1153, are 1 point below fair value, and the Nasdaq 100 futures, at 1548, are 8 points below fair value.
The below table highlights some of the night's most notable reporters, and the reasons behind the stock's move:
After Hours Mover % Change Move Reason for Move
Agilent (A) +10% Electronic instruments and controls company raises its 1Q04 (Jan) EPS and revenues targets and also issues guidance for Q2 (Apr) that is at or above the Reuters Research consensus estimates; Explains that both semi and semi capital equipment have been particularly strong
Altera (0LTR) -5% Programmable logic devices (PLD) semi name reports Q4 (Dec) EPS of $0.12; however, after backing out a $3.2 mln pre tax charge and applying ALTR's 27% tax rate to it, Briefing.com comes up with $0.11, which is in line with the consensus estimate; Top-line was also short at $217.4 mln
McDonald's (MCD) unch Fast food giant matched the Street's Q4 (Dec) EPS forecast of $0.25 on sales that rose 17% to $4.56 bln; Shares have been relatively flat, consistent with their flat trading range since November following the stock's explosive 92% run in Mar-Nov
Novellus (NVLS) -8% Chip company tops Reuters Research estimates in Q4 (Dec) report, but gives a weaker than expected Q1 (Mar) EPS outlook; Puts EPS at $0.08 (consensus of $0.11), revenues at $240-250 mln (consensus of $243.4 mln), and orders at $305-315 mln; Direct rivals AMAT and KLAC are down 2% tonight
Texas Instruments (TXN) -2% Semiconductor company beats consensus EPS and sales expectations in Q4 (Dec) report; Says that Q1 (Mar) EPS should be $0.16-0.22 (consensus of $0.17) and revenues should be $2.72-2.95 bln (consensus of $2.69 bln); Traders take some profits from the stock's rally (+3%) into the close today
Tomorrow, the market will have its hands full with earnings reports from three Dow components (Caterpillar, DuPont, and Merck), and one piece of economic data. Consumer Confidence for January will be released at 10 ET, and the consensus estimate is set at 105.0, which represents a hefty 15% gain in conjunction with the Michigan Consumer Sentiment jump.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
7:06PM NVLS pulls Semiconductor stocks lower in after hours : The Nasdaq QQQs trade down 2% as Novellus (NVLS -7.5%) guidance weighs on the tech sector. On co's conference call, the semiconductor equipment maker issued Q1 guidance of $0.08, which is below the Reuters Research consensus of $0.11; co sees revenues for the qtr of $240-$250 mln (consensus $243.3 mln). The disappointing guidance is putting pressure on the usual suspects in after hours: AMAT -2%, KLAC -2%, TER -0.9%, INTC -0.56%.
5:08PM Altera comments on gross margins for 2004 (ALTR) 24.58 +0.88: -- Update -- On conference call, management indicates that gross margins are expected to continue trending in the 65-67% range in 2004. Gross margins for just-reported Q4 were 67.5%.
4:34PM Metrologic Inst and seven other Auto ID manufacturers win Judgement (MTLG) 29.00 -0.67: Co announced that U.S. district court in Las Vegas, Nevada has ruled against the Lemelson Medical, Educational & Research Foundation in a joint industry lawsuit that began in 1999. Case resulted in a decision last Friday in concluding that the 14 patents claimed by Lemelson are invalid and unenforceable.
4:32PM Texas Instruments beats by $0.01, ex items, guides Q1 EPS in line, revs higher (TXN) 31.99 +1.02: Reports Q4 (Dec) earnings of $0.20 per share, excluding a $0.07 contribution from sale of Micron Technology common stock and a $0.02 contribution from reduction in TI's estimated taxes for 2003, $0.01 better than the Reuters Research consensus of $0.19; revenues rose 29.1% year/year to $2.77 bln vs the $2.72 bln consensus. Co guides Q104, sees EPS of $0.16-0.22, vs the R.R. consensus of $0.17, and revenues of of $2.72-2.95 bln vs an estimate of $2.69 bln. For Y04, co also expects capital expenditures to be about $1.1 bln.
4:31PM TXN prelim $0.20 vs $0.19 consensus; revs $2.77 bln vs $2.724 bln consensus :
4:27PM Artisan Components beats by 2 cents (ARTI) 22.92 +0.51: Reports Q1 (Dec) earnings of $0.14 per share, $0.02 better than the Reuters Research consensus of $0.12; total revenues rose 43.3% year/year to $20.1 mln vs the $20.3 mln consensus.
4:21PM Altera reports (ALTR) 24.14 +0.27: Reports Q4 (Dec) earnings of $0.12 per share, which includes a $3.2 mln pre tax charge. After applying co's 27% tax rate to the gain and backing it out, we came up with EPS of $0.11, in line with the Reuters Research consensus of $0.11; revenues rose 3.8% year/year to $217.4 mln vs the $218.2 mln consensus. In touch with Reuters to confirm EPS.
4:20PM Millipore beats by $0.05, ex items (MIL) 45.88 +0.73: Reports Q4 (Dec) earnings of $0.53 per share, excluding a $0.24 gain from a reversal on a tax charge and an $0.11 charge related to severance cost and fixed asset write offs, $0.05 better than the Reuters Research consensus of $0.48; revenues rose 16.1% year/year to $215.8 mln vs the $197.7 mln consensus.
4:18PM Altera approves 10 mln share increase in stock repurchase program (ALTR) 24.14 +0.27: -- Update --
4:10PM Zoran delays release of Q4 results due to delays in audit (ZRAN) 20.50 +0.86: Co postpones the release of its Q4 and full year 2003 financial results, originally scheduled for today, due to unanticipated delays in the completion of its 2003 audit. ZRAN now expects to release its financial results and host the quarterly conference call on or before February 2nd.
4:10PM Silicon Labs beats by $0.12, ex items, beat on revs; guides above Q1 consensus (SLAB) 44.00 -0.91: Reports Q4 (Dec) earnings of $0.44 per share, excluding $0.05 in charges, $0.12 better than the Reuters Research consensus of $0.32; revenues rose 82.0% year/year to $109.6 mln vs the $95.2 mln consensus. Co sees Q1 (Mar) revenues in the range of $104-108 mln, above the Reuters consensus of $93 mln.
4:07PM Novellus beats by a penny, beats on revs (NVLS) 40.25 +0.36: Reports Q4 (Dec) earnings of $0.07 per share, $0.01 better than the Reuters Research consensus of $0.06; revenues rose 4.1% year/year to $226.5 mln vs the $219.7 mln consensus.
4:07PM Agilent boosts outlook (A) 33.91 +0.47: Co sees Q1 revenues to be in the range of $1.63-1.68 bln, Reuters consensus is $1,61 bln and raises EPS guidance, ex items, to $0.20-0.24 (previously $0.05-0.15), Reuters consensus is $0.12. Also see Q2 revenues of $1.65-1.70 bln, consensus is $1.65 and EPS between $0.20-0.25, consensus is $0.17. "We have not seen the normal seasonal decline in first quarter activity," said Ned Barnholt, co chairman, Pres and CEO. "Both semiconductors and semiconductor capital equipment have been particularly strong. We have also been successful bringing the benefits of lower structural costs to Agilent's bottom line."
4:06PM SLAB prelim $0.44, consensus $0.32; revs $109.6 mln vs $95.15 mln :
4:01PM Microsemi announces 2-for-1 stock split (MSCC) 32.41 -0.13:
3:23PM Texas Instruments Earnings Preview (TXN) 32.03 +1.06: Texas Instruments reports its Q4 after the close with Reuters Research earnings expectations of $0.19 per share and revs of $2.72 bln. CSFB believes the co is tracking at the high-end of its mid-qtr guidance for growth in the 4% to 9% range due to strength in its wireless and analog business. The firm expects the co to guide above seasonal growth q/q. CSFB notes TXN is its favorite long-term pick given its strong average selling prices and product cycles (increasing wireless content, digital consumer), high barriers (manufacturing, footprint, integration) and positive secular positioning (shift to DSP/Analog).
3:17PM 50 Day-Alert -- Applied Materials (AMAT) 22.91 +0.39: -- Technical -- Stock was hit hard on Friday with it slipping below its recent range floor 22.92 and its 50 day exp mov avg (22.98). AMAT was stymied near these levels this morning (early session high 22.91) but is back hovering near this area again in recent trade. Next short term level of interest, if able to build on the recovery attempt, is at its 50 day simple avg at 23.13.
3:15PM Novellus Earnings Preview (NVLS) 40.07 +0.18: Novellus reports its Q4 after the close with Reuters Research earnings expectations of $0.06 per share and revs of $219.6 mln. Merrill Lynch believes accelerating demand from customers late in the quarter could result in modest revenue upside towards $225 mln and one to two cents in EPS upside. The firm notes orders should exceed upward revision and reach 30% or more Q/Q. The firm's checks indicate that many of the company's customers are requesting delivery of their tools "yesterday". Lehman believes the co is likely to benefit from increased adoption of copper and advanced dialectric applications and continues to recommend the purchase of the shares ahead of earnings. The firm notes the focus on the NVLS call will be on Mar quarter guidance with Lehman suggesting the co will not disappoint. Based on strong backlog of ~$350 mln and the co's strong op leverage, Lehman expects the co to beat consensus by reporting revs of $250 mln and EPS of $0.13.
3:01PM Altera Earnings Preview (ALTR) 24.13 +0.26: Altera is scheduled to report Q4 results tonight after the close, with consensus standing at $0.11 in EPS and $218 mln in sales, and guidance at $214-$220 mln in sales. CSFB expects the co to report $0.11 and $216 mln, as they continue to expect a below-seasonal qtr since growth outside communications remains early for the PLD sector; firm expects R&D and SG&A expenses to remain at elevated levels in order to support the co's drive to diversify beyond non-communications mkts, and expects gross margins to trend down and operating margins to remain in the mid-20s (below prior peak levels) due to the declining benefit from written-off inventory as well as an incrementally challenging selling environment; also, firm expects manufacturing to be a key topic on the call since they believe rival XLNX has the lead in 90nm. Firm expects ALTR to guide Q1 rev in-line with normal seasonality of about 7.6%, as the co's recent new product strength has been from prototypes that are likely to see a temporary lull before the volumes ramps.
2:37PM LogicVision beats by $0.05; guides for Q1 (LGVN) 5.50 +0.12: Reports Q4 (Dec) loss of $0.11 per share, $0.05 better than the Reuters Research consensus of a loss of $0.16; revenues rose 182% year/year to $3.7 mln vs the Reuter consensus of $3.0 mln. Co sees Q1 (Mar) loss per share of $0.16-0.18, Reuters consensus is a loss of $0.17 and revenues of approx $2.0 mln, consensus is $2.3 mln
1:54PM FNSR color 3.63 +0.03: American Technology Research says they have mixed feelings about FNSR's acquisition of Honeywell's Vertical Cavity Surface Emitting Lasers biz for $75 mln. On the positive side: 1) the price looks reasonable at about 2.7x sales, 2) new division is profitable, 3) industry consolidation is positive, and 4) FNSR's cost of goods sold is lowered since FNSR was a 25-30% customer. On the negative side: 1) the acquisition costs $75 mln in cash, bringing down FNSR's cash position to $172 mln, 2) integration risk, 3) 155 additional headcount increases FNSR's fixed costs, and 4) timing is an issue given FNSR's need to focus on reducing operating costs. Firm maintains Hold rating, and believes FNSR will be range-bound in the $3-$4 range until the co shows stronger signs of operating expense control.
1:02PM Adaptec to acquire storage virtualization software co Elipsan; no terms (ADPT) 10.46 -0.02:
12:44PM 50 Day-Alert -- ChipPAC (CHPC) 7.94 -0.13: -- Technical -- After setting a new six month high on Jan 20, CHPC has pushed steadily lower (down as much as 14.7%). For the second session in a row it has been testing support near its 50 day simple mov avg (at 7.93 today, session low 7.92).
Cisco (CSCO) 28.20 +0.87 : According to an article in Barron's, expectations regarding Cisco's JanQ can be considered rather high. Everyone from EMC to Juniper said demand revived in the latest quarter and posted stellar results. The stock has gone from $23 to almost $30 since Nov. The shares are valued at 38x expected earnings for the current July 2004 fiscal year, and a mere 33x July 2005 estimates. Cisco has adeptly grown earnings in recent years by acquiring other businesses with its own highly-priced shares but now potential acquisition targets have themselves gotten expensive. One technology development that might help Cisco grow into its earnings multiple is IPv6 -- the next generation communications standard for the Internet.
Artisan Components (ARTI) 22.92 +0.51 : After the close, reported Q1 (Dec) earnings of $0.14 per share, $0.02 better than the Reuters Research consensus of $0.12; total revenues rose 43.3% year/year to $20.1 mln vs the $20.3 mln consensus.
Metrologic Inst (MTLG) 29.00 -0.67 : Metrologic Indt announced that U.S. district court in Las Vegas, Nevada has ruled against the Lemelson Medical, Educational & Research Foundation in a joint industry lawsuit that began in 1999. Case resulted in a decision last Friday in concluding that the 14 patents claimed by Lemelson are invalid and unenforceable.
Micron Technology (MU) 15.00 +0.29 : Micron (MU 15.00 +0.29): Bernstein upgraded Micron to Mkt Perform from Underperform and raises tgt to $13 from $9.50. Firm believes Micron's analyst meeting last Friday may serve as a positive catalyst. Also believes short-term momentum is positive, as stock has acted well since it reported Q1 earnings in late December. Following its winter analyst meeting in recent years, Micron has been able to generate some optimism, and the stock has traded up in March for four straight years.
OmniVision Tech (OVTI 52.93 +1.83): Schwab SoundView upgraded OmniVision Tech to Outperform from Neutral on view that 1) recent decline in stock is unwarranted, 2) competitive landscape not drastically deteriorating this year in firm's view; 3) Cameras will rapidly become the norm in mobile phones and Omnivision could consolidate its market position there; 4) Omnivision's new product road map for this year is promising. Firm's price tgt goes to $70 from $55.
Power Integrations (POWI 30.74 -0.06): First Albany upgraded Power Integrations to Buy from Neutral with a $40.40 target. The firm would start adding to positions in the high $20s as weakness in cell phone components during Q1 will allow investors to buy shares in one of the best secular growth companies. The firm believes that the bad news reflected in the company 44 will be short-lived, and the co is poised in front of a multiyear strong new product cycle (LinkSwitch). The price target is based on 40x CY05 estimate of $1.01.
Skyworks (SWKS 11.71 +0.49): Weisel Upgraded Skyworks to Outperform from Peer Perform stating that co's shares are trading at a relatively attractive valuation compared with peers. With an impressive product ramp and new market penetration, firm looks for accelerated revenue growth and improvements in the operating model to drive EPS growth in 2004. Firm believes that after three consecutive quarters of flat wireless revenues, Q1's strong results coupled with positive Q2 guidance could indicate that SWKS has turned the corner and is on an upward trend.
5:31PM Lexmark (LXK) $84.50 +5.66: Before the open Monday, Lexmark printed Q4 EPS of $1.05 on revenue of $1.370B (+13.4% Y/Y) vs. Reuters Research consensus at $0.92 on $1.325B.
Guidance
Guided for Q1 EPS of $0.79-0.89 on $1.163-1.208B (mid to high single digit Y/Y revenue growth) vs. consensus at $0.84 on revenue of $1.220B.
Performance
Revenue / Cash Flow Analysis
Q4:02 (12/31/02) Q4:03 (12/31/03) % Change Y/Y Performance
Revenue (in millions) 1207.3 1369.5 13.4 Revenue increased 13.4% Y/Y on strong corporate and consumer demand.
Supplies (~52% of sales) increased 10% Y/Y $716MM.
Hardware (~48% of sales) increased 23% Y/Y to $560MM, driven by Inkjet All-in-Ones.
Cost of Revenue 823.5 932.8 13.3 Gross profit increased 13.8% Y/Y on progress on manufacturing costs.
Gross margin improved 10 bps Y/Y to 31.9%.
Gross Profit 383.8 436.7 13.8
Operating Expense 224.0 248.9 11.1 Operating profit increased 17.8 Y/Y on both manufacturing and operating cost efficiencies.
Operating expense increased 11.1% Y/Y on lower SG&A and R&D expense.
SG&A expense increased 8.4% Y/Y; improved as a percent of sales by 60 bps Y/Y to 13.0%.
R&D expense increased 7.8% Y/Y; improved as a percent of sales by 27 bps Y/Y to 5.1%. Guided for higher R&D in Q1.
Sales, General and Administrative
164.6 178.5 8.4
R&D
65.3 70.4 7.8
Operating Profit 159.8 187.8 17.5
Operating Cash Flow 283.5 269.0 (5.1) Operating cash flow decreased 5.1 Y/Y.
Margins Analysis
Q4:02 (12/31/02) Q4:03 (12/31/03) bps Change Y/Y Performance
Gross Margin 31.8 31.9 10 Guided Q1 gross margin higher on a Y/Y basis due to improved product costs, and higher on a Q/Q basis due to increased mix of supplies.
Guided operating expense ratio to be comparable to up on a Y/Y basis due to higher R&D spending.
Guided operating margin higher on a Y/Y basis.
Operating Profit Margin 13.2 13.7 48
Sales, General and Administrative
13.6 13.0 (60)
R&D
5.4 5.1 (27)
Valuation
Table I (Revenue Growth and Operating Margin Matrix) shows, on an inverted DCF / EVA basis, the revenue growth and corresponding operating margin the company must achieve each year for the eight years beginning in C06 in order for investors to justify owning shares at current valuation. Table I: Revenue Growth and Operating Margin Matrix.Revenue Growth* Operating Margin*
High 20% 14%
20% 19%
15% 24%
* Assumes firm balance sheet management and steady Y/Y improvement. On a price multiples basis, LXK trades at 2.1x C04E revenue of $5.105B (+7.4% Y/Y) and 2.0x Reuters Research consensus C05E revenue of $5.531BB (+8.3% Y/Y), and 23.5x C04E EPS of $3.60 and 20.6x C05E EPS of $4.11.
Summary
LXK is enjoying strong corporate and consumer demand against a relatively benign pricing environment. Results reflect company's strong product portfolio and the progress management is making in seeding the market with LXK hardware. LXK's Inkjet installed base increased 9.3% Y/Y to 47MM units in 2003; the Laserjet installed base increased 8.3% Y/Y to 5.2MM units. In seeding the market with LXK hardware, management is laying the foundation for sustained revenue growth and margins expansion, to be driven by higher margin consumables. As a result, business momentum favors the company and shares are poised to trade higher. However, note that shares have risen 26% since we profiled the company in Story Stocks on October 17, 2003, meaning LXK will now need to deliver sustained revenue growth or margins at the high end of their respective ranges as implied by our model. Even though management has telegraphed LXK's intent to hold firm on pricing, the aggressive price competition characteristic of the computer / computer peripherals market leaves a thin margin for error and tempers our enthusiasm for LXK shares at this level. We would initiate a minor position at current level but prefer doing so on an 8-15% pull-back.--Ping Yu, Briefing.com
1:36PM Vitesse Semiconductor (VTSS) $8.59 -0.25: After the close Thursday, Vitesse Semiconductor published Q1 pro-forma EPS of $0.00 (GAAP of -$0.04) on revenue of $50.312 (+40.9% Y/Y) vs. Reuters Research consensus at ($0.01) on $48.09MM.
Guidance
Guided for Q2 pro-forma EPS of $0.01 (GAAP of ($0.03-05) on $55MM (+28% Y/Y; +10% Q/Q) vs. consensus at $0.00 on revenue of $51.52MM.
Performance
Revenue / Cash Flow Analysis
Q1:03 (12/30/02) Q1:04 (12/30/03) % Change Y/Y Performance
Revenue (in millions) 35.710 50.312 40.9 Revenue increased 40.9% Y/Y on broad distribution of orders from company's four key markets across all geographies, including Japan. Book-to-bill of 1.18, highest since 2001.
Product Revenue Distribution:
Storage revenue (~53% of sales) was as management expected. Management is seeing very strong design activity for serial-attached SCSI and 4GB fibre channel; looking for production to begin in late 2004; forecasting 5% Q/Q growth for Q2 (seasonally the weakest quarter).
Enterprise revenue (~23% of sales) improving on high end packet switches for wireless infrastructure, Ethernet processors and gigabit ethernet and MACs (media access controllers); forecasting 10% Q/Q growth on continued ramp in packet switches and MACs and as ELS (ethernet LAN switches) begin to ramp.
Metro revenue (~12% of sales) was exceptionally strong, driven by ethernet over SONET and VoIP (voice-over-IP); forecasting 15% Q/Q growth on continued steep ramp across all products.
Core revenue (12% of sales) experiencing strong order growth and backlog for OC48 and OC198 modules and backplanes; forecasting 15% Q/Q growth.
Geographic Revenue Distribution:
Americas ~67% of sales.
Japan ~12% of sales.
Asia-Pacific ~12% of sales.
EMEA ~9% of sales.
Cost of Revenue 16.176 17.869 10.5 Gross profit increased 66.1% Y/Y on manufacturing efficiencies.
Gross margin improved 978 bps Y/Y to 64.5%, reflecting sale of optical module group and the winding down of the Colorado Springs 6 GaAs (gallium arsenide) wafer fab.
Gross Profit 19.534 32.443 66.1
Operating Expense 40.151 37.978 (5.4) Operating profit improved Y/Y from ($20.617MM) to ($5.535MM) on manufacturing and operating cost reductions.
Operating expense decreased 5.4% Y/Y on lower SG&A and R&D expense.
SG&A expense decreased 12.4% Y/Y; improved as a percent of sales by 1,482 bps Y/Y to 24.4%. Guided for flat SG&A in Q2.
R&D expense decreased 1.7% Y/Y; improved as a percent of sales by 2,213 bps Y/Y to 51.1%. Guided for lower R&D in Q2.
Sales, General and Administrative
13.993 12.257 (12.4)
R&D
26.158 25.721 (1.7)
Operating Profit (20.617) (5.535)
Margins Analysis
Q1:03 (12/30/02) Q1:04 (12/30/03) bps Change Y/Y Performance
Gross Margin 54.7 64.5 978 Operating margin likely to come in at 18-27% over the next 6-8 quarters based on the following:
Gross margin of 60-65% (upside possible).
Management guidance for SG&A expense as a percent of sales at 15% over the next 6-8 quarters.
Management guidance for R&D expense as a percent of sales at 22-25% over the next 6-8 quarters by keeping R&D flat as revenue grows.
Operating Profit Margin (57.7) (11.0) 4,673
Sales, General and Administrative
39.2 24.4 (1,482)
R&D
73.3 51.1 (2,213)
Valuation
Table I (Revenue Growth and Operating Margin Matrix) shows, on an inverted DCF/EVA basis, the revenue growth and corresponding operating margin the company must achieve each year for the eight years beginning in F06 in order for investors to justify owning shares at current valuation. Table I: Revenue Growth and Operating Margin Matrix.Revenue Growth* Operating Margin*
High 30% 23-24%
Low 30% 28-29%
High 20% 33-34%
* Assumes firm balance sheet management and steady Y/Y improvement. On a price multiples basis, VTSS trades at 6.6x F04E revenue of $280.85MM (+79.6% Y/Y) and 5.9x Reuters Research consensus F05E revenue of $313.32 (+11.6% Y/Y), and 142.2x F04E EPS of $0.06 and 40.9x F05E EPS of $0.21.
Summary
VTSS is enjoying strong order growth across product markets and geographies, driven by a general recovery in the company's four core markets and recent design wins. Q1 results also point to management's progress in reducing manufacturing and operating expenses. We think sales growth will continue to accelerate, and margins expand, driven by: 1) the general recovery in the company's core markets, 2) continuing strong design activity and recent design wins, 3) the Cicada acquisition, and 4) manufacturing and operating cost reductions. However, at a capitalization of over $1.8B, the market is getting ahead of the sustainable revenue growth and operating model VTSS may be able to deliver over the next 6-8 quarters, much less for the next 8 years, even with the Cicada. We would wait for a 15-25% pull-back before opening a minor position.
The Cicada acquisition provides VTSS with complementary physical layer technology in the ELS market, and may as much as double the company's addressable market opportunity within the ELS space given management's view that Cicada's technology may ultimately help OEMs reduce components costs by 20-25%. Management expects VTSS to capture 25-40% of the ELS market over the next two years, and forecast Cicada to have a neutral impact on earnings in H1:04 and to be accretive by $0.01 in H2:04 as the ELS market begins to ramp.--Ping Yu, Briefing.com
9:42AM Power Integrations (POWI) $31.50 +0.70: After the close Thursday, Power Integrations published Q4 EPS of $0.16 on revenue of $32.291 (+10.6% Y/Y) vs. Reuters Research consensus at $0.17 on $35.41MM. Revenue came in below consensus due to lower than expected shipments into the cell phone market.
Revenue and EPS Guidance
Guided for Q1 EPS of $0.13-0.16 on $30.35-32.29MM (-6.0% to 0.0% Q/Q) vs. consensus at $0.16 on revenue of $35.4MM.
Guided for C04 EPS of $0.70-0.80 on $35.6-35.9B (+10.6-11.5% Y/Y) vs. consensus at $0.78 on $156.84MM.
Performance
Revenue and Cash Flow Analysis
Q4:02 (12/30/02) Q4:03 (12/30/03) % Change Y/Y Performance
Revenue (in millions) 29.198 32.291 10.6 Revenue increased 10.6% Y/Y on firm ASPs (average selling prices), and improving demand from the consumer, computer and industrial segments, partially offset by lower than expected demand from the communications market.
Communications revenue (36% of sales) declined 25% Q/Q due to lower than expected shipments into the cell phone market.
Consumer revenue (28% of sales) increased 83% Y/Y on a 130% and 71% Y/Y rise in shipments to set-top box and consumer appliances manufacturers.
Computer revenue (22% of sales) increased 19% Y/Y on a 75% Y/Y rise in shipments to LCD manufacturers.
Industrial revenue (8% of sales) increased over 100% Y/Y.
Product
28.874 31.783 10.1
License Fees and Royalties
0.324 0.508 56.8
Cost of Revenue 15.269 15.906 4.2
Gross Profit 13.929 16.385 17.6 Gross profit increased 17.6% Y/Y on manufacturing efficiencies.
Gross margin improved 190 bps Y/Y to 49.6% (excludes 110 bps benefit from purchase of buildings).
Operating Expense 9.245 9.280 0.4 Operating profit increased 51.7% Y/Y.
Operating profit margin improved 596 bps Y/Y to 22.0% as sales grew at a faster rate than manufacturing costs and operating expenses.
Operating expense increased 0.4% Y/Y.
Sales and marketing expense declined 1.6% Y/Y; improved as a percent of sales by 141 bps to 11.4%.
General and administrative expense increased 5.8% Y/Y; improved as a percent of sales by 24 bps Y/Y to 5.3%.
R&D expense increased 0.1% Y/Y; improved as a percent of sales by 127 bps Y/Y to 12.0%.
Sales and Marketing
3.734 3.673 (1.6)
General and Administrative
1.622 1.716 5.8
R&D
3.889 3.891 0.1
Operating Profit 4.684 7.105 51.7
Margins Analysis
Q4:02 (12/30/02) Q4:03 (12/30/03) bps Change Y/Y Performance
Gross Margin 47.7 50.7 304 Guided for Q1 gross margin of 48-49%.
Guided for C04 gross margin of 47-49%.
Operating Profit Margin 16.0 22.0 596
Sales and Marketing
12.8 11.4 (141)
General and Administrative
5.6 5.3 (24)
R&D
13.3 12.0 (127)
Valuation
Table I (Revenue Growth and Operating Margin Matrix) shows, on an inverted DCF/EVA basis, the revenue growth and corresponding operating margin the company must achieve each year for the eight years beginning in C06 in order for investors to justify owning shares at current valuation. Table I: Revenue Growth and Operating Margin Matrix.Revenue Growth* Operating Margin*
High 30% 25%
35% 30%
30% 35%
* Assumes aggressive balance sheet management and steady Y/Y improvement. On a price multiples basis, POWI trades at 6.2x C04E revenue of $154.11MM (+22.6% Y/Y) and 5.1x Reuters Research consensus C05E revenue of $187.20 (+21.5% Y/Y), and 42.0x C04E EPS of $0.75 and 31.5x C05E EPS of $1.00.
Summary
Revenue miss reflects management's limited visibility into the high turns (products booked and shipped in the same quarter) communications business. Overall, demand for POWI's ICs-based (integrated circuits) power conversion solutions is improving, driven by:
the need for energy efficient appliances and devices (mandated by global energy efficiency guidelines);
the need for compact and cost effective power conversion solutions (advances in appliance/device technology and design require transformers with smaller form factors); and
increases in the prices of iron and copper over the past year and manufacturing cost reductions at POWI.
The latter in particular makes the TinySwitch (2-20 watts) and TopSwitch (10-250 watts) product families price competitive alternatives to traditional transformers. As a result, POWI's power conversion solutions, led by the newer TinySwitch II and TopSwitch GX products, are poised to continue penetrating the consumer, computer and industrial markets. Additionally, the newest products, DPA-Switch and LinkSwitch (0-3 watts), are expected to ramp over the next several years. POWI is targeting several high volume opportunities within a current addressable market estimated at approximately $1.6B; production quantity shipments are beginning on two major design wins. We think POWI's addressable market opportunity will expand as manufacturers convert from older iron and copper technologies to ICs-based solutions, leading to sustained 20%+ revenue growth and operating margin above the rates implied by our inverted DCF/EVA model. However, shares fully reflect these growth and margins expectations despite the 10.5% pull-back since December 31, 2003. As a result, we would initiate a minor position at current level only for the aggressive growth portion of portfolios; prefer initiating on a 10-15% pull-back or until POWI delivers growth in the high teens to low 20% range.--Ping Yu, Briefing.com |
