CRUS: Can they restore investors' confidence?

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Technology Stocks
CRUS: Can they restore investors' confidence?

An SI Board Since January 1997

Posts	SubjectMarks	Bans
23	0	0

Emcee: jason	Type: Unmoderated

Introduction Compact

CRUS has been lingering around the 52-week low as the markets
soared to record highs week after week. The troubles with
the company are apparent: revenues have been down compared to year-ago
periods (although they seem to stabilize after several disastrous
quarters), net profit margins were in the low single digits as
profit plummeted. Are there still hopes in the company?

I gathered CRUS's financial data for the last few years and have
done some number crunching with the data. In the followings, I'll
present three scenarios: a rosy scenario, a bearish scenario and
a more realistic scenario. My conclusions from the analysis are that:

1) Cirrus's cost structure (R&D+SGA) is too high, which results in
thin net profit margins year after year.
2) to restore investors' confidence, the management team should
set the goal of bringing the net profit margin to the 10% mark by
keeping R&D budgets under control while raising the gross margin
to above 40%;
3) CRUS has a decent chance to make ~1.30 to 1.50 for the next fiscal
year and its stock price could be back to ~$30 by the end of '97
if the goal stated above is met.

Here are some of the historical financial data for CRUS that will
be used in my analysis (note: CRUS's fiscal '98 starts at March 97).

SqRvGr GrMg R&D SGA
95Q2 .09 .44 .18 .14
95Q3 .13 .41 .18 .14
95Q4 .20 .39 .18 .13
96Q1 .10 .41 .18 .13
96Q2 .06 .45 .17 .12
96Q3 -.07 .40 .20 .15
96Q4 -.21 .04 .30 .20
97Q1 -.08 .38 .28 .14
97Q2 .10 .38 .25 .13
97Q3 .07 .38 .24 .12
mean* .08 .40 .22 .13 (*excl. 96Q4)

SqRvGr: Quarterly sequential revenue growth rate.
GrMg: Gross margin.
R&D: R&D spending as % of revenue.
SGA: Selling, General and Administrative as % of revenue.

For comparison, many other companies in the semiconductor business
are running their companies at a much lower cost ratio. For example,
ADI consistently achieves a gross margin of ~50% while keeping both
R&D and SGA at roughly 15%. ATML is even better, with both R&D and
SGA close to 10%. S3, who competes directly with CRUS, was able to keep
R&D under 15% and GSA at 10%. The high expenses with which CRUS
runs their business really eat into the company's profit.

(continued on next post)

Go to reply# or date (mm/dd/yy):

Reply	Message Preview	From	Recs	Posted
23	exchange2000.com exchange2000.com	ted quinn	-	6/20/1997
22	My basic problems with mgmt are: 1. They took on alot of liabilities to get in	frank burch	-	2/20/1997
21	Ted: I agreed with you that the old CRUS team were a lousy team at best in run	jason	-	2/12/1997
20	3D Labs will destroy CRUS. Pure and simple. That is, if CRUS management doesnt	ted quinn	-	2/11/1997
19	TO ALL : Found this entry on DIMD thread Here's some interesting re	john greene	-	2/10/1997
18	Crystal semi is one of the few bright spots in this company. Crystal accounted	NCKEV	-	2/10/1997
17	I am new to this company and this thread. I am considering buying CRUS because	Terrapin	-	2/9/1997
16	According to CRUS 10K filings, Option execrcise prices are $35, $26.50, $21.5	johnd	-	2/3/1997
15	I agree- management absolutely blows. The only reason I posted all of the p/mv	frank burch	-	2/3/1997
14	All of this number crunching on this thread is ridiculous. CRUS has and will co	ted quinn	-	2/1/1997
13	This analysis id fairly crude, but CRUS stands out so much, I think it's in	frank burch	-	1/28/1997
12	It is somewhat misleading to focus on gross margin thinness. The Micrus deal be	Gary Burton	-	1/27/1997
11	Jason, I think CRUS R&D is wasteful, dont get me wrong. However, I don	Robert Talty	-	1/27/1997
10	Ted: You are right again. This is actually a CRUS strategy - high R&D le	johnd	-	1/25/1997
9	Jason & Bluesky: MiCRUS deal was entered in late 94 to early 95. The deal	johnd	-	1/25/1997
8	Robert: You provided some very informative insights into the business. I had h	jason	-	1/25/1997
7	Your findings on R&D are right on the money. It is way out of line for the	ted quinn	-	1/24/1997
6	Ted and others: Thanks for the responses. I'll do more research on CRUS.	jason	-	1/24/1997
5	Have you thought of discussing your findings with CRUS to see what their strate	ted quinn	-	1/23/1997
4	Improved margins will come from new products improved manufacturing sa	johnd	-	1/23/1997
3	Jason, Good analysis, however it will be hard to improve margins and reduce R&	Robert Talty	-	1/23/1997
2	Your analysis was the best thing I have seen on SI in over a year. Looking forw	ted quinn	-	1/22/1997
1	The Rosy Scenario In this best-case scenario, the c	jason	-	1/21/1997

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