Yesterday the SEC issued a subpoena to Nu Horizons (NUHC) for documents related to business with Vitesse Semiconductor (VTSS.pk). The motive for the subpoena is not public but I suspect it is to understand the mechanics of the transactions between the two companies that enabled Vitesse to engage in bad financial behavior.
Archive for Symbol 'vtss.pk'
My only hope for this call was that I would not be surprised. In the absence of any information from the company since November 6 2006, I discovered my mind is capable of generating some frightening scenarios. The last thing I wanted to see was one of those scenarios realized. None were.
Finisar (FNSR) reported revenue Monday evening of $107.5M. No written transcript of the call is available, though a replay is and the company overview was updated. I thought there were three notable announcements.
JDSU (JDSU) announced that they are acquiring Picolight, a maker of VCSEL based optical transceivers. This is yet another example of healthy consolidation in the optical components business, which ultimately will lead to a better business environment for all- except for the customers like Cisco that exploit the oversupply situation. And Cisco is the likely reason JDSU bought Picolight in the first place.
The Vitesse (VTSS.PK) accounting debacle announced yesterday will impact other companies in the components market. My gut feeling is that other non-commodity component companies are engaging in this behavior right now. The old adage applies- if you see one roach, there are a thousand more.
Continue reading ‘Others Will Feel Vitesse Semiconductors Pain’
Vitesse (VTSS.PK) announced the results of the review by the Board of Directors into stock option backdating and revenue recognition issues. I found the release lacking in new information, and I expected to see more information about the implication of several disclosures.
Continue reading ‘Vitesse Announces Result of Investigation’
The WSJ profiles Tennenbaum Capital Partners in a Page One article today ($$$ Link to WSJ). I harbor no illusions about the risk inherent in my Vitesse Semiconductor (VTSS.pk) investment. The worst case scenario for the company is a liquidity crunch, which would leave it in the hands of creditors. The creditor most likely to benefit is Tennenbaum, and their track record should rightfully concern Vitesse investors.
Robert Chapman filed another colorful 13D yesterday which disclosed a reduction in the number of Vitesse (VTSS.pk) shares he controls (7.3% to 6.2%). This time, it is his trading activity, not his prose, that is most interesting.
I’ve been engaged in constant debate with readers and other investors about my position in Vitesse Semiconductor since disclosing it. Based on reader email, it was one of my more unpopular opinions. I thought it would be appropriate to share my investment thesis from early August with a wider audience.
NPU companies consistently make the case the market is moving into their domain and that technology is their edge, right up to the point they go out of business.
Continue reading ‘EZ-Chip and Raza Micro at Gilder Telecosm 2006′
All of the correlation between Nu Horizons and its competitors and suppliers has broken down. “This time is different” can be the four most expensive words an investor can use.
It’s very profitable for distributors - while it lasts. I examine the recent disclosures from Vitesse Semiconductor and the potential impact on their largest distributor, Nu Horizons.
Continue reading ‘Trickle Down Economics and Channel Stuffing’
OK, since I’ve been called out by Om Malik, I’m going to let rip with a stream-of-conciousness monologue on optical. No backspace key, no delete key, spelling corrections ex-post-facto. Here goes.
Vitesse Semiconductor Corp (VTSS) is mentioned yet again in today’s WSJ. Bondholders are descending on companies who have failed to file financial statements with the SEC due to options backdating investigations. Technically, these companies are in default and bondholders can demand immediate repayment. If the company cannot pay, they could be forced into bankruptcy.
Activism in technology stocks is long overdue and it is refreshing to see it taking root. Robert Chapman is turning his attention to a company in a sector in dire need of external consolidation forces.
Continue reading ‘WSJ Profiles Robert Chapman, Vitesse Activist’
The slow motion disaster movie that is Applied Micro Circuits Corporation (AMCC) is still in theaters even though investors stopped buying tickets long ago.
AMCC announced this morning an all cash deal to buy Quake Technologies for $69M net. AMCC has managed to spend nearly $1BB in cash on a number of acquisitions, none of which have provided a return better than simply sticking the dollars in the bank. We feel that Quake will be yet another failed acquisition.
I am listening to the Vitesse Semiconductor (vtss) conference call.
Many people have asked me what I thought about owning Vitesse stock. My only answer was that “I didn’t own any”.
Today, on the Vitesse conference call, the details came out. Revenue recognition issues.
There is still something unseen, and related to Vitesse.
Notes from the call are below:
Continue reading ‘Vitesse Conference Call’
There is some discussion that PMC-Sierra (PMCS) may have overpaid KKR for the storage semiconductor portion of the Agilent business.
We think PMC-Sierra did indeed overpay. Here’s a generous financial picture of the storage division.
| Revenue | 112M | |
| Gross Profit | 78.4M | 70% Margins |
| R&D | 22.4M | 20% Typically |
| SG&A | 16.8M | 15% Typically |
| EBITDA | 39.2M | Conclusion: PMCS paid 11x Pretax Earnings |
Some have drawn the conclusion that this is a positive deal because it is accretive to earnings, while ignoring the erosion of stockholder equity. Others draw conclusions by comparing this deal to the Qlogic deal or Adaptec deal. We don’t think that’s important. What is important is what will need to happen for shareholders to realize a decent ROI on a 425M cash investment.
These are the real questions:
- Will the unit volume grow?
- Are the margins defensible?
- Does the product line have a compelling roadmap?
1. HP and IBM are moving away from Fibre Channel. Their roadmaps are pointed at SAS and SATA arrays. Outside of EMC there has been a wholesale shift from Fibre Channel to SAS as a technology. PMC-Sierra has made a big investment in this area but emerged with only one big win- you guessed it - EMC. It is safe to assume that EMC is expected to provide the bulk of the top line growth for the Tachyon products.
2. Today, nearly 1/2 of the Agilent Fibre Channel revenue comes from EMC. EMC as a supplier isn’t going to be thrilled by the prospect of paying 70% margins long term on $50MM of annual sourcing business. Even if the margins are at this level we don’t expect them to stay there long. Since most of the top line growth going forward is likely to be EMC, expect the margins on this business to drop into a range of 30-50% more common with mature boutique product technology cycles
3. We have some serious concerns here. It is known that Sierra Logic was founded by the team that built the original HP/Agilent Tachyon products. Agilent has been slow to migrate their products away from Fibre Channel and ceded the new SAS market to companies like VTSS and PMCS. PMCS already has a running start in SAS/SATA, so why do they need Agilent? Also, it’s impossible that this was a cash flow harvesting move by PMC-Sierra since they would be terminating the product roadmap for their #1 storage customer.
PMC-Sierra is a well managed company but we don’t see the logic in this acquisition. “There is what we see and what we do not see” (Bastait) and it is what we do not see that may be most interesting. Some enlightenment from management on what we do not see would be most welcome.
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