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Technology Stocks : VLSI Technology - Waiting for good news from NASDAQ !!! -- Ignore unavailable to you. Want to Upgrade?

To: Doug who wrote (3795)	7/6/1998 10:06:00 AM
From: DanZ	Read Replies (2) \| Respond to of 6565

Doug, I don't have a clue if VLSI will make the estimate this quarter. The estimate is for 9 cents which I view as conservative based on past history. They earned 7 cents last quarter on revenues of $141 million and based on statements from the company, I think we should expect revenues of between $138 and $145 million this quarter. There are 45,668,000 shares outstanding so they need net income of $5.6 million (before taxes) or $4.1 million (after taxes) to earn 9 cents. With revenues around $140 million, their costs of good sold will probably be around 58%. Based on past income statements, they need to get their revenue up to $180 million to get their costs of goods sold down to 55%. So the cost reductions would have to come out of R&D or G&A. Based on statements from the company several months ago, I believe they did reduce G&A. They would have needed to reduce expenses by $1.3 million to earn 9 cents on $140 million in revenue. G&A was 18.6% of sales last quarter, above their average over the previous 4 quarters of about 16% of sales. It looks like they didn't expect revenues to be $50 million lower than the previous quarter and didn't cut G&A until it was too late. Given that they made a conscious effort to reduce expenses this quarter, I think they could have reduced G&A to 16.5% of sales and that would be enough to get their earnings up to 9 cents on $140 million in revenue if R&D was constant at around $28 million. Another consideration is with 45.668 million shares outstanding, every $456k in net income adds 1 cent to earnings. That's quite a bit of leverage for a company with $140 million in revenue and I think they could earn more than 9 cents this quarter if revenues are around $143 to $145 million. Regardless of their earnings this quarter, the stock is still cheap when you look out six to twelve months. Dan