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Technology Stocks : DII Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (1652)	6/6/1998 1:02:00 PM
From: kolo55	Read Replies (1) \| Respond to of 1845

Problem with DII is really Orbit, not Multek. From an e-mail I received: Key excerpt from release: Thomas J. Smach, DII's chief financial officer, added, ''The Street's second quarter consensus estimates are currently at 39 cents. We now expect our second quarter to fall within the range of 23 to 25 cents per share, on a diluted basis, and expect modest sequential improvement in the third quarter. Based on the best information we have today, we should be able to meet the current investor expectations of 45 to 50 cents in the fourth quarter. Our guidance for 1999 remains unchanged at about $2.00 per share.'' Is this now damaged goods, with mgmt losing credibility? Leaving the number the same for 1999 seems aggressive? But forecasting this quarter as the bottom is interesting and their view of Q3 should be more reliable. Their balance sheet is not good with a great deal of debt and goodwill and tangible book of only $3.70. Is this an opportunity at $15? At roughly the billion sales level do they have the expertise and are they candidates for any of this "elephant" outsourcing business? (The fact that it closed at the low on such a strong Dow day may mean more downside?) The recent announcement was prompted by a downturn in the board fabrication business, which has hit all the board makers, such as Hadco, Praegitzer, etc, and has hit DII's Multek division. And it didn't help that Multek just bought the high volume board plant from IBM in Austin. (I wonder if the extra capacity from that plant hitting the market has influenced board pricing? But I doubt it, it does seem that a lot of Asian sub 8-layer boards came in, and there does seem to be an inventory problem in the channel for many of customers of the 8+ layer boards.) But the real problem at DII is with Orbit Semiconductor. I pulled out of the stock last fall, and replaced my stock with call options on dips at the same price, because of the uncertainty revolving around the startup of the new fab for Orbit. (The call options expired worthless in March, and since then, I have no position in DIIG). I don't follow the ASIC makers, so I don't know enough about the ASIC business to make a call on Orbit. Therefore, at this time, I can't make a call on DIIG. The lack of my visibility means that I'll pass on this stock at this time, even though it might be a great deal at this price. But the management comments on profits for next year are intriguing. Although briefing.com had some very disparaging comments on managment's forecast for this Q (before the warning), over a longer period, management has a better track record predicting earnings growth. So at 7-8 times next year's earnings(1999), the stock on the surface looks interesting. If someone wanted to play the bottom in DIIG, they need to really dig into the ASIC business and understand how Orbit fits and competes in that business. Multek will eventually turn, and Dovatron, although not the best assembler out there, has a good assembly business. Multek should turn later this year, and I think the IBM purchase will pay out. Dovatron should grow the same as the assembly sector average growth (25% per year). The other businesses are somewhat slower growth, but have good margins, and provide nice cash flow. This leaves Orbit as the key to forecasting the stock price, IMO. Other stocks in the sector are selling close to their bottoms, and have excellent growth prospects, and will be world class players. I prefer to focus on Jabil and Flextronics where both are going to do close to or over $2B in revenues over the next year, and so are selling at a forward looking PSR of 0.55-0.65. Jabil historically has one of the highest margins in the sector, so the low PSR doesn't make sense. Paul