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

To: DJBEINO who wrote (2373)	1/19/1998 4:20:00 PM
From: MoonBrother	Read Replies (1) \| Respond to of 9582

USC's IPO seems accelariting, possibly in first half of 1998 - says H & Q analyst. ----------------------------------------------------------------- 07:06am EST 10-Dec-97 Hambrecht & Quist (Robert C. Chaplinsky, (415) 439-34) ALSC: Exhibit 1: USC Earnings Contribution Estimates "Reported EPS" may not tie due to rounding Source: H&Q estimates Although we are now modeling earnings to begin to improve in the March and subsequent quarters as the company transitions away from the commodity memory market to high performance and embedded memory products, we are not expecting significant earnings momentum for the next several quarters until the memory oversupply situation in Asia improves. However, we believe the biggest near term catalyst for Alliance will be an acceleration of the initial public offering of the USC joint venture semiconductor foundry. Alliance owns approximately 19% of this joint venture and stands to become a key beneficiary of a successful IPO. We believe UMC and the board of USC are very motivated to accelerate the IPO to sometime during the first half of CY1998 as the joint venture is in need of a source of funds to build another leading edge fab. Although our initial valuation of Alliance's equity investment in the USC joint venture was approximately $9 to $19 per share (see our July 14th report, "Equity Stakes in the UMC Joint Ventures..."), we now believe the value is lower based on a weaker Taiwanese stock market and valuation reductions in both UMC (2303 -TSE, not rated) and TSMC (2330 - TSE, not rated). We now estimate the floor value of Alliance's equity position in USC at approximately $4 to $5 per share. However, we believe this valuation can dramatically change (positively or negatively) based on the relative timing of the IPO. Investment Recommendation ALSC stock is trading down on continued DRAM ASP erosion and concerns over the company's exposure to the South East Asian markets (which we estimate to be approximately 20 to 25% of sales). With the stock near book value, we believe a large majority of the weakness mentioned above is already reflected in the stock price. Although we remain very concerned about the impact of weak memory pricing and the long term effects of the environment in the South East Asian markets, we continue to believe that there is significant hidden asset value based on the company's investment in the USC joint venture that is currently not currently reflected in the price of ALSC stock. Although earnings may remain depressed for several quarters as the memory market continues to be in a state of oversupply, we believe that earnings derived from the profitability of the USC fab will be a key contributor to the bottom line until the memory market strengthens. Therefore, we are maintaining our Buy rating on ALSC.