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Technology Stocks : The New QLogic (ANCR) -- Ignore unavailable to you. Want to Upgrade?

To: Kelly Igou who wrote (16398)	5/27/1998 3:01:00 PM
From: Fang Li	Read Replies (1) \| Respond to of 29386

the Daily Trouble (Archive) - A review of a company whose stock price has been cut in half within the last year. May 26, 1998 Adaptec Inc. (Nasdaq:ADPT - news) Phone: 800-462-5179 Website: adaptec.com Price (5/22/98): $16 15/16 HOW DID IT FIND TROUBLE? Where have all the scuzzy people gone? SCSI (Small Computer System Interface), pronounced scuzzy, has long been computer input-output specialist Adaptec's claim to fame. Until recently its popularity ran high everywhere from networks to home computers. Fans of Iomega (NYSE:IOM - news) may recall looking for a piggyback a few years ago and stumbling across Adaptec. It made sense since the SCSI-based Zip Drive was so much faster than the parallel port version. Yes, this little piggyback came to market -- and got slaughtered. By now we probably know that in the ever-changing computer industry, few things remain as sustainable standards. It is a history lesson that repeats, and those who fail to reinvent themselves retreat. Adaptec did not rest on its laurels and upgraded its SCSI technology (the most recent being the Ultra2 SCSI), but still, popularity of its signature I/O device has waned. The slowdown, in everything from Adaptec's host adapter cards to its disk drive controllers, has had a definite impact on the company's financial performance -- back-to-back earning surprises to the downside. In the December quarter, Adaptec stunned investors, pre-announcing that earnings would fall in the $0.35 to $0.40 a share range. They eventually came in at $0.38 a share, and that was well below the $0.57 a share analysts were looking for before the downgrade. The salt in the wound, and more troubling than the financial wet blanket, was the news that inventory was piling up. The sluggish demand was further accentuated when the company closed out its March fiscal year with yet another quarterly disappointment -- this time missing the already watered down $0.29 a share estimate by nine cents a share. It had become a scuzzy investment. The stock disconnected. BUSINESS DESCRIPTION Naturally based out of California, Adaptec provides bandwidth management technologies for organizations building the global information infrastructure. Its high-performance I/O, connectivity, and network products are incorporated into the systems and products of major computer and peripheral manufacturers. FINANCIAL FACTS Income Statement 12-month sales: $1007.2 million 12-month income: $172.9 million 12-month EPS: $1.46 Profit Margin: 17.2% Market Cap: $2005.4 million Balance Sheet Cash: $697.4 million Current Assets: $992.0 million Current Liabilities: $140.5 million Long-term Debt: $230.0 million Ratios Price-to-earnings: 11.6 Price-to-sales: 2.0 HOW COULD YOU HAVE SEEN IT COMING? Adaptec is getting squeezed from both ends. SCSI is getting hit by Universal Serial Bus on the low-end (which will be incorporated into Windows 98, whenever Bill Gates and the Justice Department shake hands) and fibre channel on the high-end. This may have become apparent to investors who were following the trends developing last year. The sub-$1000 computers were flying off the racks, and they contained high-capacity IDE drives, not SCSI drives. The booming market for Internet publishing could have meant happy days for SCSI-based scanners if not for the proliferation of dirt cheap parallel-port ones. So Adaptec's woes were not simply company made. The trends were working against the company, and those who saw the writing on the wall got out of stock before the all the problems became apparent. WHERE TO FROM HERE? Ultra2 SCSI has twice the burst rate of the wide ultra SCSI. With the convenience of accommodating cables four times as long, will it be enough for a market with too many alternatives? To survive, Adaptec has sought to diversify, recently winning the bid for Symbiosis, Hyundai's U.S. semiconductor subsidiary. The FTC is looking into the proposed merger, but even if the deal falls apart, Adaptec has a lot of cash on its hands and is not afraid to use it. Clearly, this is a company that is beaten, perceived as a behemoth at a time when being nimble matters. I wouldn't sell Adaptec's prospects, or the stock, short, though. It picked up Symbiosis for a bargain and it has the capital to buy up nimble innovators if the company doesn't have the talent in-house for a turnaround. That's when this little piggy will go home. --Rick Aristotle Munarriz (tmfedible@aol.com) For more things Foolish, go to the The Motley Fool's complete site! We aim to inform, educate and help you make good money, Fool. Also, check out the FoolMart, the place to shop for Foolish investing tools. Archives: [ Fri May 22 \| Tue May 19 \| Fri May 15 \| Tue May 5 \| more ]