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

To: Starowl who wrote (3622)	9/10/1998 12:20:00 AM
From: Jim Switz	Read Replies (1) \| Respond to of 5944

Well, we're not likely to get any help from the broad market on Thursday; the S&P futures right now are at about -7.5 according to CNBC. (I'm watching a repeat of tonight's "Geraldo", wherein he gets another chance to choke on his slavish love for Slick Willy. I take perverse pleasure in seeing lefties shown to be morons, but everyone needs a hobby . . .) And the Nikkei is pretty wanky, although down only a little bit right now quote.yahoo.com^N225&d=1d to see it for yourself. Here's another perspective from a perpetual pessimist/short on Yahoo, alias "ABDEFHJKMN". Yes, that's right. Say it 3 times fast. The possible flaw in his logic is that he's utterly, completely discounting ADPT's ability to push technology and make money with its core SCSI business. I disagree, but I don't know to what degree I disagree. Now say THAT 3 times fast ;-). Anyway . . . ------------------- I believe the market will react slightly positively, assuming that the S&P futures are not down significantly tomorrow, off-setting whatever benefit this might have. Something like up 1/2 point would be appropriate in my eyes. They are admitting that they have nothing of value on a stand-alone basis in storage solutions, fibre channel, and traditional networking. This is not a surprise to the institutional investors, but at least they are jettisoning these operations in a way and focusing on the core business. The satellite networking spinoff (Broadlogic, Inc.) will be a small business now with a relatively small capitalization. I don't know if it will be a full spinoff to shareholders or they will do an equity carve-out (an IPO of, say, 20% of Broadlogic which allows them to benefit the upside while establishing a market value for the unit), but this will be a slight positive to recognize value of some good assets in most institutional investors' eyes (at least that's what the investment bankers told them, I know I would have). The problem with this is that it is financial engineering. It doesn't create value in a true sense, only in the case that the sum of the parts is likely slightly greater than the whole ADPT currently. None of this solves their long term product positioning problem ,their reliance on a dwindling technology, and their lack of successful R&D. While they maintain equity in the fibre channel and networking technologies, they are admitting that they had no ability whatsoever to produce meaningful products by themselves. Any portion of their valuation that was predicated on these R&D efforts (likely small, but who knows) will be marked down tomorrow morning. The satellite networking spin-off will likely have less than a $100 million market cap, or less than 10% of ADPT's current value -- not enough to have a material impact even if viewed as a blockbuster. This news came out late enough that there are no after hours trades. I have an Instinet terminal at work and there are no bids or offers in ADPT. Good luck everyone. I honestly hope ADPT goes up for you all tomorrow. However, I am mindful that they face an uphill battle and these announcements are largely cosmetic in nature. Again, best of luck. <in his next message . . . > These actions are taken out of desperation, something that the market is not likely to let slip by. The charges to exit these businesses and set up the joint ventures will allow them to mask just how weak this quarter really is. They will probably largely be able to write-off a great number of money-losing operations for this quarter and just show the core business, which is likely to have marginally positive earnings. The reduced operating expenses going forward is a plus, but this business hardly smacks of a growth business that deserves a high PE ratio. If ADPT's core leftover business after the JV and spinoff are effected can earn, say, $0.75 in 1999 and garner a PE of 8x, this would be worth $6 per share. The cash on the balance sheet is worth another $6 per share. The satellite networking business is worth $1-2 per share next year. The two Joint Ventures are worth less than $1 per share in my eyes. The total potential upside is less than $15 over the next 12 months. The risk you are taking is enormous: that the core business will be able to earn anything like 75 cents per share and will be afforded a PE of 8x (both very unlikely given the current state of the markets and the worldwide economic situation). Now you know why ADPT is at $11. In the most creative way possible, its maximum valuation is $15 at the end of next year. Not a bad return if it happens, but it ain't gonna happen. Good luck everyone. --Adam