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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: GVTucker who wrote (68641)	8/30/2005 9:33:02 AM
From: Elroy	Read Replies (1) \| Respond to of 77400

People that are short the stock have told me that the quality of earnings for OVTI is very low. Totally false. Just look at their free cash flow for proof. It is much better than reported earnings. There have been (as far as I can tell) no "one time benefits", "gains on sale of assets", etc. in the past 6 quarters that is usually associated with "low quality" of earnings. The only potential "quality" issue is that the company has been able to reduce its tax rate from 34% in Fiscal 2004 (April) to 28% in fiscal 2005 to a forecast 20% in fiscal 2006, so that may be their issue. However, the tax reduction is (again, as far as I can tell) permanent, so there is nothing low quality about it. If you have any explanation about what exactly is low quality, I would like to know. Their operating margin has ranged from 15%-25% over the past year, and their income statement is not that complicated. Sales - (COGS of the chips + operating expenses) + interest income = pre tax income. They are fabless so there is no huge depreciation in there. I don't see any of the typical stuff associated that the confusing large conglomerates come up with (no currency benefits, no sales of intellectual property). Also, there's a lot of worry that MagnaChip and Micron will be a serious competitive threat soon. Aside from monopolies Intel and Qualcomm, every semiconductor company faces serious competition CONSTANTLY. It's a competitive cutthroat business. That doesn't explain why ~32% of OVTI's float is short while ~4% of MU's float is short and ~3% of ADI's float is short. 32% is a HUGE number. But in a stock like OVTI with this high of a short interest, if you don't understand the short case, then you're not doing enough homework (even though you disagree with it). I've done over 18 months of homework, and you're right, I don't understand the short case. I can understand a neutral view. I can't understand why a growing, profitable, cash rich, debt free, industry leader (#1 in image sensors) with a PE of ~11x (or 7x in you deduct cash from the share price) is a Sell. Every semi stock in the S&P500 as well as peers SNDK, ZRAN, and SGTL have higher PEs (they range from 17x-32x). OVTI's fundamental position is not TWICE as bad as any of those other stocks. MU loses money every quarter, has had an operating margin between (-15% to +10%) for the past three years, has NEVER had an operating margin above 15% for a year, and its price to sales is TWICE Omnivisions. OVTI's operating margin for the last year was 22% and its price to sales is half MU's. OVTI = ~32% of float short. MU = ~4% short. I have lots of knowledge of this stock, and yet I still don't understand why OVTI is a better short candidate than MU.