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

To: MoonBrother who wrote (1744)	9/30/1998 7:14:00 PM
From: MoonBrother	Respond to of 4710

Analysts' Latest Comments. Enjoy! --------------------------------------------- 09:09am EDT 30-Sep-98 Dain Rauscher Wessels (Gollamudi, Raj 612-313-1204) VTSS VTSS: B-Agg; Revenue Shortfall at Nortel Renews Concerns About Telecom Segment Dain Rauscher Wessels A division of Dain Rauscher Incorporated VITESSE SEMICONDUCTOR, INC. NASDAQ: VTSS BUY-AGGRESSIVE PRICE TARGET: $34 September 30, 1998 Price: $24.75 52-Week Range: $35-$16 Year End: September Fiscal Year EPS P/E 1997A $0.31 79.8x 1998E $0.54 45.9x 1999E $0.85 29.1x Cal. Year EPS P/E 1997A $0.36 68.8x 1998E $0.61 40.6x 1999E $0.90 27.5x Tr. 12 ROE: 15.1% 3-Yr. EPS Gr: 50% Shares Out: 79.4 million Book Value: $3.93 Market Cap: $1.96 billion SEMICONDUCTOR TECHNOLOGY Raj Gollamudi rgollamudi@dainrauscher.com (612) 313-1204 Katherine Egbert Kegbert@dainrauscher (612) 313-1310 * VTSS shares sold off again Tuesday, September 29 following revenue shortfall warnings by Nortel. * Although Nortel is a not a significant customer, the telecom equipment segment is a major segment for Vitesse (accounting for roughly 50% of revenues). * The company has not seen any meaningful slowdown in orders from its telecom customers to date. * We expect solid September-quarter results relative to our estimates of $53 million in revenues and EPS of $0.16 with a positive book-to-bill (in the range of 1.18-to-1.2). * In the short term, concerns about the health of the telecom equipment will continue to weigh on VTSS shares, although the long-term outlook looks solid. * We maintain our Buy-Aggressive rating on VTSS shares. Our 12-month price target is $34 based on a 40 multiple of fiscal 1999 EPS estimates of $0.85. Revenue Shortfall at Nortel Renews Concerns About Telecom Equipment Segment Revenue Shortfall at Nortel Renews Concern About the Telecom Equipment Sector: VTSS shares sold off Tuesday, September 29 following a revenue shortfall disclosure from Nortel that revealed that its September-quarter revenues would be below expectations, although profits would be roughly in line with consensus estimates. Nortel's announcement comes on the heels of announcements from several other major telecom equipment vendors including Alcatel, Ericsson, Tellabs, and CIENA, among others. Alcatel, CIENA, and Tellabs are all Vitesse customers (albeit minor ones) and together make up about 7% or 8% of Vitesse revenues. Nortel is not a significant customer. Lucent, which stands out by its continued bullish outlook and strong order growth, is Vitesse's largest telecom customer and accounts for more than 20% of revenues. Although the concern about the strength of the telecom sector is certainly not without merit, Vitesse continues to see solid demand for its products from its major telecom equipment customers. Bookings in the quarter from the telecom equipment customers are strong (Lucent, etc.), and book-to-bill for that sector will be above the overall book-to-bill ratio. Datacom, which was the highlight of the previous quarter, continues to be strong with Cisco being an important customer in the segment. ATE Business Also an Area of Concern: ATE (automated test equipment) is another area of investor concern. ATE vendors such as Teradyne, Schlumberger, Advantest, and others have experienced weakness along with all other semiconductor capital equipment vendors. However, Vitesse parts are used in high-end equipment by its customers (Schlumberger and Teradyne are both 10% customers). The high-end segment continues to be strong. High-end microprocessors and high-speed memories (e.g. Rambus) are examples of products that are typically tested using systems that are enabled by Vitesse parts. ATE book-to-bill ratio for Vitesse should be solid in the quarter and is likely to be up from the June quarter. We expect ATE to grow better than 10% sequentially. Recall that telecom accounts for 50% of revenues, datacom for 25%, and ATE for 25%. We remain comfortable with our estimates for the remainder of the year. Our estimates for the September quarter (fiscal fourth quarter) are $53 in revenues and EPS of $0.16. Lower Book-to-Bill as New Fab Accelerates Revenue Growth: With the addition of new capacity at the company's recently built six-inch GaAs wafer fab in the September quarter, we should see accelerating revenue growth accompanied by lower book-to-bill ratios. We expect a strong bookings quarter with a book-to-bill ratio roughly in the 1.18-1.2 range. Revenue growth in the September quarter should be more than 15% sequentially. We expect backlog to grow nicely from the $93 million level in the June quarter. Stock Opinion: We believe the concern about the overall strength in the telecom segment (50% of Vitesse' revenues) is likely to continue to put pressure on the stock in the near term. However, as Vitesse continues to see robust demand for its products, we should see solid results from the company in the coming quarters. The company continues to see robust bookings strength in the September quarter. We continue to like the long-term outlook for Vitesse's business, which is being driven by the increasing demand for capacity and higher bandwidth (SONET OC-48 is the sweet spot) in the communications marketplace. Because Vitesse is focused at the high end of the market, a global slowdown in the telecom sector is likely to affect Vitesse less severely than other lower-end vendors. We maintain our Buy-Aggressive rating on VTSS shares. Our 12-month price target is now $34, based on a 40 multiple (a discount to the projected three-yr EPS growth rate), on our fiscal 1999 EPS estimate of $0.85. There is no change in ourN estimates.

To: MoonBrother who wrote (1744)	9/30/1998 7:16:00 PM
From: MoonBrother	Read Replies (2) \| Respond to of 4710

One More Piece ----------------------- 10:06am EDT 30-Sep-98 Needham & Co. (Peter Dale 212/371-8300) ATRM VTSS AMCC MU NEEDHAM MORNING RESEARCH SUMMARY Needham & Company, Inc. (212) 371-8300 Equity Research Trading Desk September 30, 1998 (212) 371-0312 800-843-4446 Equity Research Morning Summary Aetrium, Inc. (ATRM/OTC)$4.75 FY Revenues (mil) EPS Analyst: Theodore O'Neill,(212)705-0459 12/99E: $63.0 $(0.01) Hold. 12/98E: $60.6/64.6 $(0.19)/(0.02) ú As we reported previously, ATRM announced that its third quarter results would be below analysts' expectations. It estimated that 3Q98 EPS would be in the range of a loss of $0.21 with an improved 4Q98. ú The Company also commented on revenue saying that 3Q98 revenue would be approximately $12 million. We have lowered our estimates according to both Company guidance and consistent with our expectation of an increase in bookings in early-mid 1999. ú We continue to rate these shares a Hold based upon a near lack of visibility in the coming quarters. We believe that investment in this sector requires an investment horizon beyond our six-to-12 month rating horizon. Communications Semiconductor Industry: Impact of Northern Telecom Revenue Concerns Analyst: David Wong, (212)705-0314 ú We think that news from Northern Telecom's analyst day yesterday caused concerns about Nortel's revenues. We do not believe that stock price drops in Vitesse, PMC-Sierra, Level 1, and AMCC are warranted. ú AMCC has high exposure to Nortel, with about 20% of revenues coming from Nortel. Nortel is a customer of PMC-Sierra and Level 1 but we do not think that it is an important customer in either case. About 3% of PMC-Sierra's revenue are in sales to Nortel. ú Vitesse (VTSS, $24.75, Strong Buy) sells almost nothing to Nortel. VTSS's largest customer (at 20% of total revenues) is Lucent, which made positive comments at an analyst's day meeting recently. We reiterate our Strong Buy rating on VTSS. ú PMC-Sierra (PMCS, $33.50, Strong Buy) and Level 1 (LEVL, $22.25, Buy) sell, we believe, small amounts to Nortel. About 3% of PMCS's revenues come from Nortel. We reiterate our Strong Buy on PMCS, and our Buy rating on LEVL. ú AMCC (AMCC, $13.56, Buy) has more exposure to Nortel than any other company we follow. About 20% of AMCC's revenues are from Nortel. We reiterate our Buy rating on AMCC, though we think there remains some risk that the market could react negatively to the Nortel news. EFTC Corp. (EFTC/OTC)$3.38 FY Revenues (mil) EPS Analyst: John McManus, (212)705-0312 12/99E: $250.0 $0.50 Buy. 12/98E: $224.5 $0.40 ú Because of Hurricane George EFTC closed the Fort Lauderdale plant and lost two days of production. ú EFTC expects to lose more than a nickel in 3Q. ú EFTC expects to earn less than $0.07 in 4Q and they will concentrate on earning greater than or equal to $0.50 in 1999. ú Our estimated book value is $7.85. Tangible book value is $4.60. ENVOY Corp. (ENVY/OTC)$22.75 FY Revenues (mil) EPS Analyst: Bernard Lirola, (212)705-0298 12/99E: $228.0 $1.47 Strong Buy. 12/98E: $179.0 $1.09 ú MCI Worldcom and America Online have agreed to reduce their intended write off of in process R&D in connection with their recent acquisitions. We believe that these agreements put additional pressure on ENVY to agree to reduce its write offs taken in connection with its 1997 and 1996 purchases of NEIC and HDIC. ú We are guessestimating that ENVY will only be able 1) to write off about 15% of its original purchase prices, and that it will have to amortize the remaining goodwill over a 20-year period. ú We believe that the stock fully reflects the most likely worse case scenario and should trade up when the cloud is finally lifted over the next few weeks. Our 12-month price target is $36. IEC Electronics, Corp.(IECE/OTC)$5.00 FY Revenues (mil) EPS Analyst: John McManus, (212)705-0312 9/99E: $215.0 $(0.02) Hold. 9/98E: $60.6251.3 $(0.07) ú We estimate a loss in F4Q of $0.40-50 versus our old estimated loss of $0.17. ú IECE has a charge of $2 MM for the closing of the Alabama plant. ú Breakeven level is $55 MM versus a revenue run rate of $40 MM. IECE will have losses through at least F1H, maybe all of F1999. inTEST Corporation (INTT/OTC)$4.00 FY Revenues (mil) EPS Analyst: Theodore O'Neill,(212)705-0459 12/99E: $22.5/28.5 $0.50/0.93 Hold. 12/98A: $18.8/19.8 $0.38/0.55 ú As we reported previously, INTT announced that its third quarter results would be below analysts' expectations. It estimated that 3Q98 EPS would be in the range of $0.03-$0.04. The Company also commented on early 1999 by saying that revenue growth would be low. ú We have lowered our estimates according to both Company guidance and consistent with our expectation of an increase in bookings in early-mid 1999. ú We continue to rate these shares a Hold based upon a near lack of visibility in the coming quarters. Micron Technology, Inc.(MU/NYSE)$31.63 FY Revenues (mil) EPS Analyst: A.A. LaFountain, (212)705-0317 8/00E: $4654 $(0.03) Sell. 8/99E: $3419/2805 $(1.10)/(1.06) ú 4Q98 results above our estimate and Street consensus, with DRAM revenue strength offsetting still-weak PC revenues. Lowered losses aided by expense control and accrual reversal in PCs and firmer DRAM pricing. ú Modifying F99 EPS estimate only modestly, although pending TI transaction would penalize EPS by an additional $1.00-1.20. Instituting F2000 estimate with profitability attained in second half of fiscal year. Shares appear overvalued given earnings prospects. ú Using a long-term revenue growth rate of 17% as a multiple on estimated FQ3 EPS of $3.39 and discounting that future value at 20% gives a current value of $20.77 and a 12 month value of $25. The potential decline to this value justifies the Sell rating. Network Appliance, Inc.(NTAP/OTC)$56.13 FY Revenues (mil) EPS Analyst: Glenn Hanus, (212)705-0361 4/00E: $395.2 $1.21 Buy. 4/99E: $272.6 $0.86 ú NTAP continues to be on track to at least meet our revenue and EPS estimate of $64.3 M and $0.20 for FQ2 ending October 31st. Product mix toward high end systems should help support revenues and ASPs but slightly lower gross margins sequentially. ú New generation products are being well received and should account for 50% of shipments in FQ2. Fibre channel will account for 80% of unit shipments by the end of FQ2. ú NTAP's salesforce should reach about 110 in F99, up from 70 at the end of F98, below its stated goal of 140. We are comfortable that this salesforce growth should enable NTAP to meet or slightly exceed our estimates as salesforce productivity is improving and ASPs are trending higher. Sanmina Corp. (SANM/OTC)$28.00 FY Revenues (mil) EPS Analyst: John McManus, (212)705-0312 9/99E: $952.0 $1.87 Strong Buy. 9/98E: $719.9 $1.44 ú Stock fell 3 points to $28.00 over concerns about slowing revenues by Nortel for 1998. ú Nortel represents 5% of SANM's revenues. Nortel percent of revenue is declining as dollar amount has been increasing. SANM does backplane and backplane assembly for Nortel; that business is unchanged. ú Bay Networks, recently acquired Nortel, is a 2% customer. Business at Bay Networks is solid. Total exposure thus is 7%, but the company has seen no deferments. ú We anticipate SANM will earn at least $0.38 for F4Q and $0.43 for F1Q (DEC). ú We are a buyer of SANM on this weakness; 12 month target price is $45 - 50. SpeedFam International (SFAM/OTC)$10.75 FY Revenues (mil) EPS Analyst: Theodore O'Neill,(212)705-0459 5/99E: $123.6/141.7 $(0.46)/0.01 Hold. 5/98A: $185.3 $1.10 ú We are reducing our revenue estimates from $141.7 million to $123.6 million, and EPS from $0.01 to $(0.46), respectively. ú The near-term order environment continues to be extremely weak. While interest seems to be high, actual production orders for the Company continue to be rare. ú We believe that the November quarter will be sequentially down in revenue, reflecting overall industry weakness. We continue to rate the stock a Hold due to the extreme lack of visibility.