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To: SJS who wrote (7939)	3/25/1999 10:42:00 AM
From: drsvelte	Respond to of 14427

GNSS - here's another take, so be cautious. (Aside, I do like SFA) Can Genesis Microchip Avoid Getting Tripped by the Chip Trap? By Herb Greenberg Senior Columnist 3/24/99 6:30 AM ET "The sad reality of specialty chip stocks is that today's star is almost always tomorrow's has-been, and investors lulled by a fast-rising stock almost always wind up getting blindsided. Just take a look at the likes of C-Cube (CUBE:Nasdaq) and S3 (SIII:Nasdaq) to see what can go wrong, or Tseng Labs and ESS Technology (ESST:Nasdaq) to see how very bad the story can get. Now a vocal chorus of short-sellers, and even a few analysts, think the same fate awaits Genesis Microchip (GNSS:Nasdaq). The Canadian company's stock came alive late last year because it was the pure play among the makers of chips for LCD flat panel PC monitors, whose sales started to sizzle last summer when the price of LCD displays started to fall. At one point they fell by as much as 50%, breaking the magic $1,000 market, making them a real competitor to regular PC monitors. Genesis was a clear winner, having grabbed more than half the market for chips that perform what is known as scaling, which scales the image up in size. There's little debate that Genesis makes a fine product. "They're headed in the right direction," says analyst J.D. Abouchar at Preferred Capital in San Francisco. "But so is their competition." And therein lies the possible problem -- especially at a company that boasts a market value of $300 million on sales that are annualizing at a mere $46 million. (That's 12 times earnings. Compare that with NeoMagic (NMGC:Nasdaq), which has more than $200 million in revenues and trades at a scant 1 times sales.) What tripped Tseng? What tripped ESS? What tripped C-Cube? What tripped S3? The same thing that skeptics think will trip Genesis: Competition and cut-throat pricing. The first hint of trouble came last week, when Genesis just made its fourth quarter. When you're trading at 59 times forward earnings, you're supposed to blow past the estimates. What's more, Abouchar and his colleague, Brian Alger, who have written a negative research report on Genesis, believe the company's forecasts are too optimistic based on industry estimates. They also believe that Genesis provides an analog solution in a world that is turning digital, using a standard created by privately held Silicon Image. Genesis CEO Paul Russo says he's not worried about the transition to digital because Genesis is in the process of acquiring Paradise Electronics, a leading supplier of chips for digital displays. And as for prices, he says the industry is currently "supply constrained," and that as more functions get integrated into one or two chips, prices may actually rise. He adds that he's aware of the history of specialty chip companies, but believes his company will prove the exception because it's got cash, a strong team of execs and it's currently the leader. Maybe you could've said the same things about the others."