It’s Robertson Stephens & Co’s turn to host a technology conference this week, offering fund managers and analysts that live or make the trip to San Francisco the opportunity to meet and probe a host of high technology companies without having to ride out to visit each of the companies on its home ground.
MICROSOFT
Giving the keynote address at the Robertson, Stephens & Co Tech ’97 conference, Microsoft’s chief technology officer, Nathan Myhrvold, told the attendees I hope my computer will be as smart as my dog some day. Confirms your suspicions about Microsoft Corp programmers, doesn’t it?
YAHOO!
Yahoo! Inc is one of the pure Internet plays whose shares have been defying gravity, but the company was able to surprise the market by turning a profit in its most recent quarter. We’ve seen very strong growth in page views in January and in February, Gary Valenzuela, Yahoo! senior vice-president of finance and chief financial officer told investors at the conference. For December, Yahoo! reported it was averaging 20 million page views a day, which is as many as its three principal rivals combined, up from 15 million a day in September and just 4 million in December 1995. Valenzuela told investors that despite some prospect of seasonal sluggishness in the advertising market early in the year, 1997 revenues should jump on a year-on-year basis – The key point is that we’ve been close to profitability in each quarter. he said, The key message I believe, as you look at the competitors, is you don’t want to stray too far from profitability because it is difficult to find your way back; we only used $3m of cash in all of 1996, said Valenzuela, adding that competitors typically have quarterly cash outflow of at least that.
CISCO SYSTEMS
Cisco Systems Inc had a bearish story for the conference, saying international sales growth is slowing amid declining capital spending and a stronger dollar. The world’s biggest networking equipment vendor is also seeing its sales lead times getting shorter, forcing the company to be more careful in controlling expenses, chief executive John Chambers told analysts at the bash.
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LEXMARK INTERNATIONAL
Lexmark International Group Inc is confident it can reach its goal of capturing a 15% share of the worldwide market for inkjet and laser printers by 2000, up from its 10% now, Bernard Masson, vice-president and general manager of the consumer printer division, told Reuters after a presentation at the Robertson Stephens Tech ’97 Agenda event.
ADAPTEC
Adaptec Inc specializes in disk controllers, and its treasurer, Christopher O’Meara told the assembly he is comfortable it can meet analysts’ estimates of $0.47 a share for its current – fiscal fourth – quarter to March 31. In March last year, Adaptec posted fiscal fourth quarter earnings of $0.37 a share and did $1.31 for the year. After his presentation at the conference, O’Meara also told Reuters that Adaptec is comfortable with the investment firm’s estimate of $2.08 a share in fiscal 1998.
LSI LOGIC
Sighs of relief from the chip sector as LSI Logic Corp’s chief financial officer Douglas Norby told the conference it appears that the semiconductor industry’s year-long problem of bloated inventories has been completely corrected and that order growth has resumed: We see broad-based order growth; our backlog is increasing and we are poised for a resurgence of growth in 1997. For LSI in particular, he said, some of the order growth will come from makers of Digital Video Disk players. He said that the company suffered a drop in sales and earnings in 1996 largely because of bloated supplies in the industry for the type of chips it makes.
C-CUBE MICROSYTEMS
C-Cube Microsystems Inc sees explosive opportunities in the markets for digital video compression and decompression chips, president and chief executive Alex Balkanski told the conference. He expects 12 million to 14 million VideoCD machines to be shipped in 1997, up from 7 million in 1996 and 1.7 million in 1995 and expects products for Digital Video Disks to account for 15% of the company’s sales in 1997, with most of this weighted to the back end of the calendar year – up from just 1% of revenues in the fourth quarter of 1996. He reckons that if sales of the drives hit the two to three million units projected by independent researchers for 1997, the industry could sell five to seven million units next year. In 1996, he said, North America accounted for 43% of revenues, Asia Pacific for 42%, with Japan at 8% and Europe at 7%, with the latter two areas growing to more than 10% in the current year. By the end of the year I expect Europe and Japan to be healthily in double digits, he said. He would not address estimates for 1997 but said Digital Video Disk products will be consistent with C-Cube’s model of 50%-plus gross margins – they are currently in the mid-50s.
IKOS SYSTEMS
IKOS Systems Inc chief executive Ramon Nunez is comfortable with analysts’ estimates that the company’s fiscal 1997 earnings will be in the $1.03 to $1.10 a share range. In the fiscal year to September 28, 1996, IKOS, which makes advanced simulation systems for the application-specific integrated circuit and systems design markets, reported earnings of $0.69 a share, after an extraordinary tax benefit, $0.30 a share excluding the tax credit. Nunez estimated the total size of IKOS’s market at about $800m in 1997, and added that the company has not experienced any slowdown in demand. We’ve seen a nice growth over the last three years, Nunez told the conference.
VLSI TECHNOLOGY
VLSI Technology Inc sent president and chief operating officer Richard Beyer along to tell the conference that the company expects gross margins to improve gradually in each quarter of 1997 as revenue growth picks up steam. Gross margins for the first quarter are expected to be nominally better than prior guidance, expanding one to one and a half points from the 41.5% reported in the fourth quarter, he told the conference. Beyer said VLSI expects revenues in the first quarter to be in a 3% to 5% range down from the fourth quarter and then to grow sequentially in the mid-single digit range in the second quarter before achieving stronger growth rates in the second half of the year; overall, he expects revenues for the full year to grow in the 10% to 15% range, consistent with that which is expected in the industry. VLSI aims to achieve gross margins in the 46% to 48% range in its ideal business model, with operating margins in the 20% to 23% range and return on equity of 20% or more, according to Beyer. The company of course fell well short of this success model in 1996, with return on investment of just 4%, but it is working towards achieving it – The success model is not something we’ll be achieving in 1997, he said, but Going forward, we expect that we will continue to improve gross margins by about one percentage point per quarter, adding that this would bring it by the year-end to the lower end of our success model.
ELECTRONIC ARTS
Electronic Arts Inc and Activision Inc are the two video game software stocks favored by Robertson, Stephens & Co, analyst Keith Benjamin said. Both companies manage the flow of hot- selling products well and have the reach to expand aggressively internationally, he said, adding that they also have plenty of games for personal computers that easily can be converted to run on Sony Corp’s PlayStation video game console. Electronic Arts has the most portable products to the PlayStation and international markets, Benjamin said, and Activision follows closely behind. And Activision Inc, in the person of Bobbi Kotick, its chief executive, told the conference that it will generate much of its revenue growth in 1998 from markets outside the US and from Sony Corp’s PlayStation; We feel in fiscal year 1998 the primary opportunity for growth will come from international sales, and to fuel this expansion, Activision is looking to make acquisitions in Europe. It will also concentrate on developing games for the PlayStation, which it expects to dominate the market by the end of the year, and will benefit as the PlayStation’s price is cut – it could be just $100 by Christmas he said.
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