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Technology Stocks : Alliance Semiconductor -- Ignore unavailable to you. Want to Upgrade?

To: Ken Muller who wrote (2236)	1/8/1998 10:28:00 AM
From: DJBEINO	Read Replies (1) \| Respond to of 9582

Headline: Alliance Semi: Downgraded to 2; Estimates and Targets Lowered (From LEHMAN) ALSC DOWNGRADED TO 2; ESTIMATES LOWERED TO REFLECT ONGOING MEMORY PRICE DECLINES, LIKELY INVENTORY WRITE-DOWNS. TWO POSITIVE DEVELOPMENTS TO WATCH: 1) A 1998 JOINT VENTURE IPO SHOULD UNCOVER $5-10 OF HIDDEN ASSETS, 2) DIVERSIFICATION INTO EMBEDDED MEMORY PRODUCTS IS A MAJOR OPPORTUNITY TO REDUCE RELIANCE ON COMMODITY MEMORIES. ------------------------------------------------------------------------------ DOWNGRADED TO 2 FROM 1 ON BASIS OF RISK/REWARD, TIMING. In early 1998, we focus on high margin, proprietary chip makers as most likely to print the numbers and appeal to investors. The good news is that ALSC has easily $5-10 of hidden value in its joint ventures, and we still expect the market to more fully appreciate the value of those ventures well before the end of 1998 (an IPO by USC, their largest joint venture, is likely). Also, ALSC is making a strong effort to move into the embedded memory effort, particularly the market for notebook graphics accelerators. However, ALSC's cost structure makes its position in the memory market precarious until either memory market conditions improve (most likely late 1998), wafer costs drop, or its embedded memory efforts become a significant part of sales. We believe ALSC could be a major short term winner as tax selling pressures subside but, as we measure risk reward, it is difficult to rank ALSC among our first picks within the chip industry until the timing of a joint venture IPO and graphics accelerator success is better evident. As a result, we now rank ALSC a 2. ESTIMATES AND TARGETS LOWERED. We project FY98 EPS at $-0.20 (old:$-0.15), FY99 $0.25 (old: $0.40) and FY00 $0.75 (old:$1.05). March FY4Q98 results now include a small inventory reserve, and FY99-FY00 operating result forecasts are more cautious due to ongoing negative memory market conditions and the uncertain timing and magnitude of embedded memory graphics accelerator success. BASED ON REDUCED EPS VISIBILITY BUT STRONG VALUE OF JOINT VENTURE ASSETS, OUR 1 YEAR TARGET IS NOW $13 (OLD: $16).

To: Ken Muller who wrote (2236)	1/8/1998 1:16:00 PM
From: patrick tang	Read Replies (1) \| Respond to of 9582

I do not agree with your analysis that ALSC is burning cash - their last Q's cash outlay was for an extra 5% of JV1. Pretty good investment, that 15M$, already at least 3x after a few months. I think that the memory market will rebound pretty quick, like by next fall latest. Finally the big boys like the Koreans are stopping fab investments. Hyundai is cutting back by at lest one year on the 4B$ Scotland fab, the 4th Korean guy that was going to do a 2B$ DRAM fab with IBM stopped it, Samsung and also Goldstar is finally scaling back expansion plan, the Japanese scaling back expansion plans, MU has stopped work on Lehli etc. ALSC should be able to last till the last rebound - in a week or so we'll be able to tell exactly how much cash/Q they are burning. As in comparison with other Taiwanese DRAM guys, ALSC is in much better shape than they are - their capacity is already ASIC process ready and their yields should be much better than most of the other guys. e.g. Powerchip at 0.4um, however good yielding they can get it to be, cannot compete with 0.35um or better yielding at UMC; Holtech was clearing in trouble until UMC bailed them out by buying an interest in them and putting in the ASIC process that allow the fab to do foundry business; Nan Yan is clearly the worst of the bunch and is clearly in trouble, they probably not yielding and the initial deal with UMC fell apart and UMC went with Holtech, I look to Nan Yan doing a spin off and letting UMC have an interest on the cheap pretty soon; Vanguard is probably in the best shape of that bunch. Not to mention that ALSC also have the 256x16 fast graphic RAM - the only guys making that now are Mosel-Vitelic, ALSC and ISSI. Most other people have already shut off their 4M fabs. Lastly,JV1's equipment is capable to 0.25um or lower (info from private source), so minimum investment is needed to stay in the DRAM game for the next 1 to 1 & 1/2 yrs, unlike some of the other Japanese or Koreans fabs perhaps. That's said, if I have more money to invest now, I would look at other guys other than ALSC. With the hi-tech stocks beaten well back, there are probably other very attractive buys out there. patrick tang