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Technology Stocks : Vitesse Semiconductor -- Ignore unavailable to you. Want to Upgrade?

To: cgraham who wrote (1640)	9/18/1998 11:56:00 PM
From: MoonBrother	Read Replies (1) \| Respond to of 4710

At $23, VTSS is an excellent value stock. In fact, all the analysts who are following the stock are screaming BUY! BUY! BUY! of VTSS. In the following several posts, I will publish more than half dozen analysts' most recent comments. Enjoy! MB ------------------------------------------------------------------- 09:35am EDT 18-Sep-98 Needham & Co. (Peter Dale 212/371-8300) DPMI ENVY HYSL RC NEEDHAM MORNING RESEARCH SUMMARY Needham & Company, Inc. (212) 371-8300 Equity Research Trading Desk September 18, 1998 (212) 371-0312 800-843-4446 Equity Research Morning Summary Vitesse Semiconductor Corp. (VTSS/OTC)$23.56 FY Revenues (mil) EPS Analyst: Glenn Hanus, (212)705-0361 9/99E: $290.0 $0.87 Strong Buy. 9/98E: $175.0 $0.67 £ We think that there is excellent near term visibility of revenues and earnings for VTSS because the company was fully booked going into the quarter. £ We believe that the weakness in VTSS' stock price in the last few days was in part due to investors' concerns over whether telecom equipment end markets are softening. We do not believe that VTSS' telecom business is in any jeopardy. £ Using a P/E of 42 on our July 99 to Jun 00 EPS estimate of $1.13 (or a P/E of 50 on our calendar 1999 estimate of $0.96) gives us a 6 - 12 month price target of $48 for the stock.

To: cgraham who wrote (1640)	9/19/1998
From: MoonBrother	Read Replies (2) \| Respond to of 4710

08:53am EDT 18-Sep-98 Needham & Co. (David Wong (212) 705 0314) VTSS PMCS LEVL Good Visibility, High Growth, Opportunity At Reduced P/E Needham & Company David Wong, Ph.D./dwong@needhamco.com (212) 705 0314 17 Sep 1998 Ryl Ashley/rashley@needhamco.com (212) 705 0406 Vitesse Semiconductor Corporation Price(9/17/98-VTSS/OTC): $23.56 Price Range(52 Weeks): $37.18-$15.81 Shares Outstanding (MM): 72.6 Average Daily Volume (MM): 1.25 FY Revs ($MM) Op. Mgn. E.P.S. P/E Ratio 9/99E $290.0 33.8% $0.87 27.0 9/98E 175.0 32.1 0.67 35.4 9/97A 104.9 27.3 0.43 - Investment Recommendation (6-12 months): Strong Buy Price Target (6-12 months): $48 Quarterly Earnings Q1 Q2 Q3 Q4 9/99E $0.19 $0.21 $0.23 $0.25 9/98E 0.13A 0.15A 0.18A 0.20E 9/97A 0.08 0.10 0.12 0.13 Vitesse Semiconductor Corporation is a leader in the design and manufacturing of gallium arsenide integrated circuits. The company combines the high-speed properties of gallium arsenide with MESFET (metal semiconductor field effect transistor) based circuit design to create highly integrated chips that work in speed ranges beyond the capabilities of current silicon technology. Products include chips for optical fiber transmission at rates of between 1 Gb/s and 10 Gb/s. These are used in telecommunications and data communications (Fibre Channel, Gigabit Ethernet, ATM). Makers of chip testing equipment use Vitesse's design libraries to create ASICs (application specific integrated circuits). Investment Opinion At a P/E (price to next 12 month earnings estimate) of about 28, Vitesse is trading at a valuation that is lower than the 30 to 45 P/E range that the stock has moved in over the last two years. We believe that the company continues to have top line and bottom line growth potential of about 50% per year. We are reiterating our Strong Buy rating on the stock. * We think that there is excellent near term visibility of revenues and earnings for Vitesse because the company was fully booked going into the quarter. We believe that the ramp of the new Colorado fab has been progressing smoothly. We are projecting $54 million in revenues in 4Q98, up from $46 million in 3Q98. * We are anticipating strong bookings for Vitesse in the September quarter, with a book to bill of 1.17 and sequential bookings growth of about 10%. We expect backlog to grow to more than $100 million (about 5 months of revenues) by the end of September. * Lucent is Vitesse's largest customer at about 20% of total revenues and about 40% of telecom revenues. We believe, from Lucent's comments at its analyst day presentation on 17 Sep 98, that Lucent is on track to meet expectations in the September quarter, and that December quarter revenues for Lucent will be strong. Reassuring News Out of Lucent The telecom business accounts for about 50% of Vitesse's revenues. We believe that the weakness in Vitesse's stock price in the last few days was in part due to investors' concerns over whether telecom equipment end markets are softening. We do not believe that Vitesse's telecom business is in any jeopardy. Lucent is Vitesse's largest customer at about 20% of total revenues and about 40% of telecom revenues. At its analyst day meeting on 17 September 98, Lucent made comments which we believe indicate that Lucent's business continues to be strong: * Lucent said that it was comfortable with analysts' estimates for the current quarter. According to First Call, consensus estimates for the September quarter were $0.38, up $0.06 sequentially, or about 19%. * Lucent indicated that there its business continues to be seasonal (although it is working to reduce seasonal fluctuations). From past results, the December quarter is traditionally Lucent's strongest, suggesting to us that Lucent's demand for Vitesse's products will continue to be high in the December quarter. * The Lucent news comes after a number of negative announcements from telecommunications equipment makers: * Alcatel released 1H98 (June) earnings results. Alcatel said it anticipated that its whole year 1998 operating performance would fall short of analysts' expectations. While this is of concern with respect to the implications for the communications chip suppliers such as Vitesse (Alcatel is a Vitesse customer), the performance of many of the chip suppliers seems to be relatively independent of Alcatel's fortunes. .Alcatel said that its second quarter (June) income was impacted by a slowdown in telecom sales. In general, June was a good quarter for the wireline chip companies that we follow, with companies such as Vitesse, PMC-Sierra (PMCS, $28.56, Strong Buy), Level 1 (LEVL, $20.375, Buy) and AMCC (AMCC, $15.25, Buy) showing strong sequential revenue growth. Alcatel's year over year growth in telecom revenues in 1H98 was only about 4%. This is in sharp contrast to the 30% to 50% per year growth in communications chip revenues of the Vitesse, PMC-Sierra, Level 1 and AMCC, although all these companies are vendors to Alcatel. * Ciena reported 3Q98 (August) results and indicated that it expected 4Q98 (November) revenues to be below those of 3Q98. In 1998 we estimate that Ciena will account for about 4% of Vitesse's revenues. We do not believe that weakness in Ciena's business in the September to November time frame will have a big impact on Vitesse's results, especially given the strength in Lucent demand that we expect in the same period. * Tellabs announced in a conference call that September quarter revenues might be flat sequentially. However, the company also said that it thought December quarter revenues would be strong (seasonal). We believe that Tellabs accounts for only about 2% to 4% of Vitesse's total revenues. We believe that strength in Tellabs December quarter would be positive for Vitesse, though the effect is unlikely to be large. Stock Valuation Is Below Range Of Last Two Years Figure 1 shows historical P/E for Vitesse. The stock is currently trading at a P/E of about 28, which is below the 30 to 45 range that the market has supported for the stock over the last two years. FY95 to FY98 revenue CAGR for Vitesse was 60% per year. We are projecting both top line and bottom line CAGR of above 50% for the company going forward (FY98 to FY00). Using a P/E of 42 on our July 99 to Jun 00 EPS estimate of $1.13 (or a P/E of 50 on our calendar 1999 estimate of $0.96) gives us a six to 12 month price target of $48 for the stock. Figure 1: Price/(next 12 mth earnings estimates) For Vitesse Month P/(Est. E.) Month P/(Est. E.) Month P/(Est. E.) Jan-96 20.4 Jan-97 41.9 Jan-98 32.5 Feb-96 28.8 Feb-97 31.7 Feb-98 38.9 Mar-96 29.3 Mar-97 30.7 Mar-98 34.9 Apr-96 35.5 Apr-97 32.2 Apr-98 40.2 May-96 32.2 May-97 34.9 May-98 35.3 Jun-96 26.8 Jun-97 32.1 Jun-98 40.5 Jul-96 27.6 Jul-97 44.6 Jul-98 42.9 Aug-96 31.3 Aug-97 42.8 Aug-98 33.7 Sep-96 38.2 Sep-97 46.0 17-Sep-98 28.4 Oct-96 29.1 Oct-97 37.5 Nov-96 41.8 Nov-97 36.7 Dec-96 38.3 Dec-97 30.9 Next 12 month earnings estimates calculated as the wieighted average of current FY and next FY consensus estimates Source ; First Call for Earnings Estimates, Bloomberg for Prices Projected Revenue and EPS Growth of More Than 50% per year Figure 2 contains historical revenue and EPS data together with our projections and estimated growth rates. We are expecting revenue growth and (fully taxed) EPS growth in excess of 50% per year over the next two years. Figure 2: Revenue and EPS Growth Rates September FY revs. EPS EPS ($000s) (fully taxed) FY95 42,882 $0.03 $0.02 FY97 104,850 $0.43 $0.31 FY98E 175,021 $0.67 $0.54 FY00E 403,000 $1.22 $1.22 FY95-97 CAGR 56% nm nm FY95-98E CAGR 60% nm nm FY98-00E CAGR 51.7% 35.4% 50.2% Source ; Company reports, Needham & Co. Estimates We believe that Vitesse's future growth will come from: * Strength in the telecom (OC-48) fiber optic market (now) * Strength in the Fibre Channel market for storage devices (now) * Emergence of the Gigabit Ethernet market (1999) * A Rebound in the ATE market (second half 1999) * Penetration of the ATM market (second half 1999)

To: cgraham who wrote (1640)	9/19/1998 12:04:00 AM
From: MoonBrother	Read Replies (1) \| Respond to of 4710

07:25am EDT 18-Sep-98 CIBC Oppenheimer (Dale R. Pfau 415-434-5871) VTSS VTSS: Reiterate Strong Buy; Fundamentals Intact CIBC Oppenheimer September 17, 1998 Telecom Infrastructure/Wireless Vitesse Semiconductor Dale R. Pfau (415) 434-5871 Reiterate Strong Buy; Lior Bregman (212) 667-7045 Fundamentals Intact Earl Lum (415) 434-5877 Investment Conclusion We continue to rate the shares of Vitesse Rating: STRONG BUY Semiconductor a Strong Buy with 12 - 18 VTSS-OTC(9/17/98) $23 9/16 month price target of $45-$50 per share. 52-week $37 3/16-13 5/16 Shares Out 79 Million The shares of Vitesse have been under heavy Float 68 Million Shares pressure this weak stemming from the recent Market Cap $1.9 Billion announcements from Ciena Corp., Tellabs,and Div/Yield Nil/Nil Alactel Alstrom,that revenues and earnings Fiscal Year September may be weak for the current quarter. There Book Value $3.93 per Share have also been rumblings about overall FY 1998E ROE 18.6% weakness in some segments of the LT Debt $0 telecommunications business at other OEMs. Preferred Nil Com Equity $311 Million We believe very strongly that business remains robust for Vitesse, and that the company is on track to meet or exceed our estimates for the current quarter. We also Earnings per Share believe that the company will report a book FY 1997 $0.43 to bill of between 1.18 and 1.22. FY 1998E $0.65 FY 1999E $0.81 Although we can understand the industry FY 2000E $1.19 concerns, we believe that the strong price/performance advantage that Vitesse P/E Ratio enjoys is leading to increasing penetration FY 1997 54.8X and increasing content with its current FY 1998E 36.3X customers and new customers. This is FY 1999E 29.1X leading to increasing revenues at even those FY 2000E 19.8X customers that are indicating some level of difficulty. We believe that the current stock price is particularly compelling as the shares are Company Description: trading at the lowest multiple that we have Vitesse designs, develops, seen in three years. We would be aggressive manufactures and markets digital buyers of the stock at these levels. gallium arsenide integrated circuits. It's products are used in the high-performance telecommunications, datacommunications, test and instrumentation markets. Our quarterly EPS estimates are shown below. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year FY 1997 Actual $0.09 $0.10 $0.12 $0.13 $0.43 FY 1998E Current $0.14A $0.16A $0.18A $0.20E $0.65E FY 1999E Current --- --- --- --- $0.81E FY 2000E Current --- --- --- --- $1.19E Stock Prices (as of 9/17/98) of securities mentioned in this report: Alcatel Alstrom (ALA-NYSE $19 1/4, not rated) Ciena Corporation (CIEN-OTC $11 13/16, not rated) Lucent Technologies (LU-NYSE $72 1/8, not rated) Nortel (NT-NYSE $39 9/16, not rated) Tellabs (TLAB-OTC $40 1/16, Buy)

To: cgraham who wrote (1640)	9/19/1998 12:06:00 AM
From: MoonBrother	Respond to of 4710

08:47am EDT 17-Sep-98 Merrill Lynch (J.Osha (1) 212 449-0930) BRCM PMCS VTSS TX ELEC-SEMICONDUCTOR:Communication is the Key ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML ELECTRONICS - SEMICONDUCTOR Communication is the Key Joseph Osha (1) 212 449-0930 17 September 1998 Reason for Report: Industry Comment Investment Highlights: o The semiconductor industry is seeing a reduction in the aggregate value of ICs sold into the PC market as PC prices move downward. We think that the industry is shifting away from the personal computer market to the communications equipment market as the key driver of growth. o We expect the semiconductor industry to see an increasing degree of fragmentation as it enters this new phase - the emergence of another dominant company like Intel seems unlikely, while Intel's dominance is expected to gradually decline. o Over the intermediate term, the current downturn will eventually give way to a new recovery once supply is absorbed and markets improve. The PC producers have been the most visible customer base that is sharply reducing chip inventories, and they are now showing some snap back from the inventory depletion of Q2. The most recent attempt to rally was concentrated in PC- centric chip producers. o For the long term, slowing growth in sales of semiconductors to the personal computer industry, due to less unit growth and lower prices, could hold overall industry growth below its 17% trend line until the next century. New market such as communications will eventually become large enough to drive overall industry growth once again. o We are currently recommending the stocks of newer companies such as Broadcom (BRCM $74 7/8 C-1-1-9), PMC Sierra (PMCS $29 13/16 C-1-1-9) and Vitesse Semiconductor (VTSS $28 1/4 C-2-1-9)on the basis of their exposure to the communications equipment industry. o Companies such as Texas Instruments (TXN $53 13/16 B-3-2-7)and Analog Devices (ADI $14 7/8 C-3-1-9)will benefit from communications exposure as well, although both companies have intermediate-term problems that prevent us from recommending them at this time. Overcapacity and a transition in end markets The semiconductor industry is in the midst of two significant reckonings at the moment - an intermediate-term overcapacity problem and a change in end markets that is longer term and more fundamental in nature. The intermediate-term problem, overcapacity and the pricing weakness that has come with it, was brought about by several years of industry overspending that is now in the process of being corrected. We are drawing closer to a cyclical recovery, although we think that another extended period of negative developments remain in front of us, aggravated by the global economic slowdown. Capacity reduction will eventually yield a PC-led recovery The current downturn will eventually give way to a new recovery once excess supply is reduced and end markets start growing faster. As order lead times return to normal, due to reduced production levels, customer inventory levels will need to be increased causing higher booked to billed ratios. The PC producers have been the most visible customer base that is sharply reducing chip inventories so they should be the customers most likely to display a snap back in ordering now that a seasonal upturn has begun. Outlook for 1998 still bleak We believe the industry has entered the steepest part of the slowdown, which has now become a downturn, at least on a YoY basis. Demand is slow and pricing remains weak across a broad range of industries and geographies. We estimate that industry revenues will decline in 1998 by perhaps 12% - 13% instead of being flat as earlier expected. In July, worldwide sales fell 16%. 1998 is the third year of lackluster results for the semiconductor industry and sets up the potential for an above trend growth year in either 1999 or 2000 as long as the macroeconomic environment remains stable. Shift in end markets is more fundamental The more important and fundamental development is the move that the semiconductor industry is seeing away from the personal computer, and towards communications equipment, as the most important driver of high-end semiconductor shipment growth. We expect the communications equipment market to create significant new opportunities for communications-geared companies including Broadcom, PMC Sierra and Vitesse Semiconductor. Older companies with the potential to benefit include Texas Instruments and Analog Devices over the longer term. In contrast, the shift towards less expensive personal computers is expected to continue, limiting the potential future revenue growth of semiconductor makers supplying the PC market. The internet has changed the PC from a computer to a consumer electronics appliance. We expect the most substantial unit growth rates to occur in the consumer space, where low prices are the most important factor. The need for bandwidth translates directly into a need for improving semiconductor performance Driving the transition from one end market to another is the need for communications bandwidth, which is affecting both the communications equipment and computer markets. In communications equipment, regardless of whether we are thinking about a PC-based modem or a router costing hundreds of thousands of dollars, the need for performance is increasing relentlessly. Semiconductors handle the process of turning incoming signals into digital data, and processing and forwarding the information as needed. Increasing data transmission rates translate directly into the need for increased semiconductor performance. Growth opportunities in the market for communications-use semiconductors are attractive. We expect portions of that market to grow at 25% to 30% for the next four years. We expect the industry to be more fragmented going forward The shift in end markets, combined with the increasing success of the fabless semiconductor model, is expected to result in growing fragmentation in the semiconductor industry. We believe that the companies we've identified have the potential to become successful suppliers to the communications equipment industry. However, we do not believe that another company will emerge in this next phase of the semiconductor industry that will dominate to the extent that Intel has. (BRCM, PMCS, VTSS) The securities of the company are not listed but trade over- the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company. Opinion Key (X-a-b-c): Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 - Reduce, 5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.

To: cgraham who wrote (1640)	9/19/1998 12:07:00 AM
From: MoonBrother	Read Replies (2) \| Respond to of 4710

07:45am EDT 16-Sep-98 Prudential Securities (H.MOSESMANN 414-395-2627) VTSS TLA VTSS: BANDWIDTH STORY IS ON-TRACK--NOW IS AN EXCELLENT BUYING OPPORTUNITY VTSS: BANDWIDTH STORY IS ON-TRACK - NOW IS AN EXCELLENT BUYING OPPORTUNITY. R E S E A R C H N O T E S September 16, 1998 Subject: Vitesse Semiconductor (VTSS--$ 26 7/8) OPINION ============= Current: Strong Buy/SBI Analysts: Hans C. Mosesmann (415) 395-2627 Prior: Ali Far (415) 395-2626 RISK: Moderate Alex Gauna (415) 395-2624 12-Month Target Price: $45 ======================================================================= Ind. Div.: - Yield: - Shares: 78.78 mil. 52-Wk.Range: 35-16 _______________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Current 9/98 $ 0.66E 41.7X $ 0.13A $ 0.15A $ 0.18A $ 0.20E Current 9/99 $ 0.82E 33.5X $ 0.17E $ 0.19E $ 0.21E $ 0.24E Current 9/00 $ 1.20E 22.9X Note: Fully-diluted EPS from continuing operations. ======================================================================= VTSS stock closed down about 7% on Tuesday based, we believe, on concerns over Tellabs (TLAB-$41 3/16; rated Accumulate by John Butler), ATE, and book-to-bill levels. On Monday, Tellabs announced that it expected flat sequential revenue growth for the current quarter, and also that it would discontinue acquisition talks with Ciena (CIEN-$13; not rated). As a low-to-mid single digit customer, we view the concerns surrounding Tellabs as overblown. Furthermore, we anticipate ATE revenues will be up sequentially, and that the company's book-to-bill ratio remains strong. At these levels, we believe shares of VTSS represent an excellent buying opportunity. Our company and industry checks lead us to believe that the September quarter is on-track for the company to meet or exceed our $0.20 estimate which is also consensus. Business is strong, particularly in WAN and LAN, and we estimate that ATE sales will also be up in dollar terms. Going forward, we expect ATE sales to continue to decline as a percentage of total revenues as growth in the non-strategic ATE segment is outpaced by demand for telecom and datacom products. We believe there remains considerable upside potential for Vitesse out of the new Colorado Springs fab, which is ramping better than expected with positive implications for gross margins and revenue acceleration. We anticipate gross margins will trend to the mid-60's over the next two years from the current low-60's. We also expect the book-to-bill to continue to trend down over time, and to drop below 1.2 in the current quarter as the company leverages its newly established capacity to work away at pent-up demand. We have every confidence that the company will meet or exceed our third quarter estimates, and that longer term the outlook remains bright. The company's high volume gallium arsenide (GaAs) process provides superior performance in high speed telecom (50% of revenues), datacom (25%), and high-end ATE systems (25%) and is a compelling solution for years to come. We are aware that many investors have shied away from VTSS due to the perceived high multiples. At today's prices, we view VTSS as an extremely attractive buying opportunity. We reiterate of Strong Buy rating and single best idea (SBI) designation on VTSS. Our 12-month price target remains at $45.

To: cgraham who wrote (1640)	9/19/1998 12:10:00 AM
From: MoonBrother	Read Replies (4) \| Respond to of 4710

08:25am EDT 16-Sep-98 Credit Suisse First Boston (Trivella, Tom (212) 325-2478) AM CALL: First Edition (PT 2 OF 3) FBC CREDIT SUISSE FIRST BOSTON CORPORATION CREDIT SUISSE FIRST BOSTON CORPORATION FIRST EDITION Vitesse Semiconductor (VTSS, $26.94, STRONG BUY) Target (12 Months): $45 Charlie Glavin, CFA 415/836-7715 charlie.glavin@csfb.com We believe VTSS stock has overreacted to recent concerns about several of its customers (including Ciena and Tellabs) and that the current quarter is still on track to hit our expectations. We believe Vitesse's fundamentals remain solid with strong bookings and good visibility across all divisions, including high-end testing, so revenue projections for the next two quarters should not at risk. The ramp of the company's new 6" wafer fab in Colorado Springs appears to be on track and under control, and should result in both higher billings and further margin expansion. We reiterate our STRONG BUY on the stock, with a 12-month price target of $45, and believe investors should take advantage of the recent price decline to buy VTSS. Annual EPS 9/99E $0.83 9/98E $0.66