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

To: Ram Seetharaman who wrote (4820)	11/8/1998 10:58:00 AM
From: otter	Read Replies (2) \| Respond to of 6565

It is arguably wrong to lump VLSI into the same sector as all other chip makers. A person who I know and whose opinion I respect in this specific area has suggested that the most appropriate competitor to VLSI is LSI - with a market cap of roughly 5x that of VLSI. One of the key differences, in his opinion, between the two companies is their management style and their approach to customers. VLSI: Flexibility. LSI: My way or the highway. (Remember, this is one person's opinion - not even mine, but if it's accurate, it suggests that VLSI is a little more customer focused than its big brother). Both companies have been hurt very badly this last year. LSI from a high of @47 to a recent low of @11. Here is a comparison of VLSI and LSI in some of the selective metrics I posted earlier: VLSI LSI Industry Avg SP500 avg PE: 16 NA 27 30 Price to Cash Flow 3.7 7.2 19.2 22 Price to Sales 0.8 1.7 5.7 21.9 Price to Book 0.9 1.4 6.5 7.4 Debt to Equity 0.3 0.0 0.1 1.1 Return on Equity 7.5% 19.5 28 21.7 5yr EPS Increase 34% 20.9 43 19 Here is a mathematical exercise with some interesting results: Low Curr Inc Beta vs DOW vs NASD $INDU 7468 8975 20.2% 1 NASD 1357 1856 36.8% LSI 10.50 16.44 56.6% 1.7 14.10 17.06 VLSI 6.00 11.00 83.3% 1.6 7.94 9.53 (Ok, Otter, nice exercise, but what is it telling you?) IF the increase in share price of VLSI was derived only from the increase in the market in general, it would be selling for somewhere between 8 and 9 1/2. LSI - somewhere between 14 and 17 (is is? Silly me!) Preliminary conclusions: 1. While VLSI's runup is reflected in similar activity by competitors, VLSI's stock price IS beating the competition. 2. If LSI is THE benchmark for VLSI, there is somewhere between 50 (based on price to book) and 100% potential (price to sales, price to cash flow) for VLSI with no change in fundamentals. 3. Discount 2 above to a degree because VLSI carries debt and LSI has only a little - and because LSI's return on equity is so much greater. 4. Discount 3 above to an extent because VLSI's 5 year increase in EPS is 50% greater than LSI's. The real conclusions: 1. Even with the recent runup, VLSI remains a bargain. 2. Momentum is a very strong ally. 3. Based on the numbers only, VLSI is a better choice for my money than LSI with much higher upside potential all the way around. 4. Potential will only be realized if investor sentiment can be turned around. THAT depends on some good announcements from the company. Comments? Other opinions?