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Technology Stocks : Adaptec (ADPT) -- Ignore unavailable to you. Want to Upgrade?

To: gda who wrote (1573)	4/3/1998 12:23:00 PM
From: slob	Respond to of 5944

Mark and gda, Net Present Value of future "free" cash flow, is the valuation method most commonly used by fund managers to value High Tech companies. This method takes into account growth, earnings acceleration and liquidity driven dilution effects, unfortunately it is very difficult to calculate. If we look at the levers effecting future cash flow we get the best picture of a stock's price direction. Strongest Levers Growth : Symbios's extra engineers will enable product portfolio growth resulting in extra revenue growth in 2000 Gross Margin : ADPT's margin is under pressure at systems level (1394 and EIDE) Symboios will enable ADPT to control SCSI pricing Cost Containment : Symbios's fab will be a real mill stone for ADPT Economies of scale will be difficult to realize in short term These are the main factors that I see Slob

To: gda who wrote (1573)	4/4/1998 6:44:00 AM
From: Mark	Read Replies (1) \| Respond to of 5944

gda, 1. If the valuation of the stock is determined by the P/E, what will happen to it after the Symbios deal goes through: A. It will double, because Symbios earnings are at least as high as adaptec's B. It will triple, because redundant costs will be cut which will drive the combined company's earnings even higher. Based on historical figures A or B could well be right. However, in the short/medium term there are two major problems - ADPT's market is likely experiencing pricing and margin pressures (?), the pain of integrating Symbios will hit the bottom line. In the longer term, they will likely have a stronger and more efficient business, which could put earnings up anywhere around your suggestions. ADPT have stated that they intend to fund the integration from cash and borrowings, but there must surely be a risk that integration costs and any market slow-down could affect their liquidity. If this is so, then a logical choice might be to raise more cash through issuing more stock. I hope ADPT are strong enough to avoid this approach, but their track record suggests they don't like debt, so there could be a chance that they will issue more shares. Since you are in the business are you able to give a read about the current health of the ADPT/Symbios market ? 2. If the valuation is determined by the PSR wouldn't it double after the Symbios etc. since the combined company will have close to have doubled adaptec's sales? On the latest figures we have, ADPT sells around $1B, Symbios $700k, so ADPT at $20.50 has a PSR of about 2.2 (Yahoo). Assuming that "ADIOS" at least maintains the combined sales (?) the PSR would fall to around 1.3. ADPT has quite consistently traded on PSRs >2. However, historically ADPT has incremental earnings growth...... I agree with you about the long term wisdom of their strategic activities. A company stands or falls by the strength of it's management. ADPT have made success seem easy for many years. Of course it wasn't easy at all; they made the right decisions at the right time, again and again. The experience that goes with that hasn't left the company, and what it is doing now looks sensible in the longer term. However, it's got to get there first, and that will take time.......... Mark