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

To: OldAIMGuy who wrote (2486)	4/16/1999 8:20:00 PM
From: Danny Chan	Read Replies (1) \| Respond to of 4710

Don't know if this was ever posted. It appears that the key is the lower visibility (eat as you go) from those contract manufactures, not the fact that the design will be changed. Overall positive report. From Smith Barney: --SUMMARY:--Vitesse Semiconductor--Semiconductors We are initiating coverage of Vitesse Semiconductor with a 1H (Buy, High Risk) rating and $60 twelve-month price target. Vitesse commands a leadership presence in several broadband communications component markets, particularly SONET/SDH, DWDM, and fiber channel applications. The company is among the most consistent performers in our coverage universe. Visibility is expected to be somewhat limited in the next several months as Vitesse's major customer, Lucent, out-sources more production. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 09/98 EPS $0.13A $0.15A $0.18A $0.21A $0.67A Previous 09/99 EPS $0.19A $0.22A $0.23E $0.25E $0.89E Current 09/99 EPS $0.19A $0.22A $0.23E $0.25E $0.89E Previous 09/00 EPS $0.27E $0.29E $0.31E $0.33E $1.19E Current 09/00 EPS $0.27E $0.29E $0.31E $0.33E $1.19E Previous 09/01 EPS $N/A $N/A $N/A $N/A $1.50E Current 09/01 EPS $N/A $N/A $N/A $N/A $1.50E Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1H Prior: Price (4/9/99)......:$51.00 P/E Ratio 09/99.....:57.3x Target Price..:$60.00 Prior:No Change P/E Ratio 09/00.....:42.9x Proj.5yr EPS Grth...:40.0% Return on Eqty 98...:17.9% Book Value/Shr(a)...:5.01 LT Debt-to-Capital(a)0.7% Dividend(99)........:$N/A Revenue (99)........:279.4mil Yield...............:N/A% Shares Outstanding..:81.9mil Convertible.........:No Mkt. Capitalization.:4176.9mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. --OPINION------------------------------------------------------------------- Vitesse Semiconductor supplies components for synchronous optical networking (SONET), asynchronous transfer mode (ATM) networking, dense wavelength division multiplexing (DWDM) equipment, Gigabit Ethernet (GbE), fibre channel and serial backplane applications. These communications products account for roughly 80% of sales, while automated test equipment (ATE) chips account for the remainder. Lucent is its largest customer at just over 20% of sales, and Schlumberger is also just over 10%. The company uses internal capacity for specialized gallium arsenide (GaAs) processes, and has just begun to use outside foundries for more generic silicon CMOS processing. The company has an excellent track record, growing sales 10% sequentially every quarter since the first half of 1995. Vitesse recently completed its March quarter, beating EPS expectations by a penny with sales up 11% sequentially and 66% from a year ago. The book-to-bill ratio was 1.13. The stock reacted negatively, however, because the company warned of lower order visibility in coming quarters as Lucent begins to use more contract manufacturers. The company has also ramped a new production facility, which has improved product availability and shortened delivery lead times. This is another factor in the weaker visibility as customers can become more 'turns' (orders booked for immediate shipment) oriented. While Vitesse management has said the book-to-bill ratio should be sustainable in the 1.10 neighborhood, it has traditionally had book-to-bill ratios well over 1.10 (and often over 1.2). Management believes (and our independent checks support) that Lucent will likely take 40-50% or more product from Vitesse this year. However, since contract manufacturers typically operate on more of a hand-to-mouth component inventory basis, the manufacturing transition may temporarily obscure the trend line of true demand. We believe this heightened uncertainty will likely cause the stock to be volatile over the next few months .We believe Vitesse remains among the best-positioned companies in our coverage universe. Our target price is $60.