Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: lazarre who wrote (1941)	10/16/1998 9:05:00 PM
From: MoonBrother	Respond to of 4710

Want something to read? Here you go. The next 10 posts are the reason for VTSS having a wild ride today. Hopefully next Monday VTSS will continue the upswing, perhaps gap up at $30! -------------------------------------------- 02:55pm EDT 16-Oct-98 Needham & Co. (David Wong, Ph.D.) VTSS 4Q98: Strong Revenue Growth, Good Bookings Needham & Company, Inc. 445 Park Avenue, New York, NY 10022 (212) 371-8300 Equity Research Morning Note David Wong, Ph.D. 212) 705-0314 October 15, 1998 dwong@needhamco.com Ryl Ashley (212) 705-0406 Vitesse Semiconductor Corp. (OTC: VTSS) 4Q98: Strong Revenue Growth, Good Bookings Price (10/15/98): 24.44 Shares Outstanding (mil): 73.2 52 Week Range: $37.18 - 15.81 Market Cap. (mil): 1,789 Recommendation/Target: Strong Buy/$48 Average Daily Volume (mil): 2.22 9/97A 9/98E 9/99E 9/00E Old New Old New New Revenue (MM) 104.9 175.0 No Change 290.0 279.0 410.0 Op'g Margin 27.3% 32.1% 32.4% 33.8% No change 35.8% EPS: 1Q 0.08 0.13A 0.19 0.18 0.27 EPS: 2Q 0.10 0.15A 0.21 0.20 0.29 EPS: 3Q 0.12 0.18A 0.23 0.22 0.32 EPS: 4Q 0.13 0.20E 0.21A 0.25 0.24 0.36 EPS: Year 0.43 0.67E 0.67A 0.87 0.83 1.24 P/E Ratio 29.4 19.7 INVESTMENT OPINION * We are reiterating our Strong Buy Rating on Vitesse. Our six to 12 month price target is $48, a P/E of 39x our FY00 EPS estimate of $1.24. * Revenues and earnings in 4Q98 were in line with our estimates. However we are adjusting our FY99 revenue estimate from $290 million to $279 million and our FY99 EPS estimate from $0.87 to $0.83. This brings our estimates closer to consensus ($0.81). These new values represent FY99/FY98 revenue growth of 59% and EPS growth of 53%. HIGHLIGHTS * 4Q98 revenues of $54.0 were in line with our $54.0 million estimate and grew 17% sequentially from 3Q98 revenues of $46 million. Telecom chip revenues grew 21% sequentially, datacom 16% and ATE 9%. * EPS of $0.21 was slightly above our estimate of $0.20. * Bookings in the quarter were strong at a book to bill of 1.17 overall, 1.22 for telecom products, 1.21 for datacom products and 1.07 for ATE. * Six month backlog of $102.5 million is equivalent to about 5 months of revenue. The next quarter (1Q99) is thus already fully booked and Vitesse remains production limited. * The company reported that it has had no indications of weakening in its telecom end markets, contrary to fears in the investment community in recent weaks. We believe that the high end OC-48 fiber optic markets that Vitesse sells into have a much strong growth dynamic that older, copper based equipment.Results as expected. Table 1: Reported results vs our expectations for the quarter We Reported Expected Comments Revenues ($MM) 54.1 54.0 Good predictability because of EPS $0.21 $0.20 production limited business Gross Margins 61.2% 61.0% environment R&D ($MM) 8.5 8.6 SG&A ($MM) 6.3 6.6 Source : Company reports, Needham & Co. estimates As shown in table 1, results for 4Q98 were in line with what we expected. We believe that the production limited business environment created by the high demand for Vitesse's products, and the company's excellent record of manufacturing execution give Vitesse a lot of control over its financial results. We have lowered our FY 99 revenue and EPS estimates slightly to bring these closer to consensus numbers, in response to guidance from the company. Revenues grew sequentially by about 17%, facilitated by the smooth ramp of the new Colorado fab. The higher fab utilization resulted in higher gross margins, up 1.2 percentage points from the prior quarter. We expect gross margins to rise steadily as revenues grow. Excellent revenue growth and bookings Table 2: Revenue breakdown by product line $Millions 2Q98 3Q98 Seq. Comments Act. Act. growth Telecom 21.4 26 21% Demand for OC-48 WDM products Datacom 13 15.1 16% Growth in OC-12 and OC-48 ATM ATE 11.6 12.6 9% High end mixed signal testers Other 0.0 0.4 Total $46.0 $54.1 17% Source : Company reports, Needham & Co. estimates. Table 2 shows that the strongest revenue growth was in the telecom product line. Despite recent concerns in the investment community concerning possible weakening of telecom end markets, we believe that demand for high end optical fiber systems remains strong and will continue to grow over the next few quarters. Vitesse's telecom revenues, primarily for chips which go into OC-48 (2.5 Gb/s) systems), grew 21% sequentially with a strong book to bill of 1.22. Lucent is Vitesse's largest telecom customer, accounting for about 23% of total revenues in FY98. Ericsson and Alcatel are also important telecom customers, each at between 3 and 7% of total revenues in FY98. Datacom revenues grew 16% sequentially with a book to bill of 1.21. While fibre channel accounts for about half the datacom revenues, we believe that ATM and gigabit Ethernet were more important as growth drivers. Seagate is an important datacom customer, but the company has a relatively broad base of customers in datacom. With the recent increase in production capability, the Vitesse is getting to a point where it might be able to expand revenues by servicing second and third tier systems makers, whereas in the past the company has had to work hard just to meet the needs of its top tier datacom customers. ATE revenues also grew 9% sequentially with a book to bill of 1.07, despite what we believe to be widespread weakness in the chip testing market. The emergence of a need for high end memory testers in Rambus memory chips, and the ramp of new, high end mixed signal testers were some factors Vitesse cited as contributing to its ATE success in recent quarters. Schlumberger is an important ATE customer at 11% of total revenues in FY98. Teradyne is another significant customer at between 3 and 7% of revenues in FY98. 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 speeds that range 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). ------------------------------------------------