Vitesse beats 1Q forecasts; tempers 2Q outlook

Vitesse Semiconductor zipped past analysts’ estimates in its first quarter Monday, raking in $47.6 million, or 25 cents a share, on sales of $165.1 million.

But slowing orders from major telecom customers, particularly Lucent Technologies (NYSE: LU) will result in only a 10 percent to 15 percent jump in sales in its second quarter, down from the 20 percent increase it enjoyed this quarter.

First Call Corp. consensus pegged the maker of chips for optical network equipment and storage networking to earn 24 cents a share on sales of $161.7 million.

Vitesse (Nasdaq: VTSS) shares closed up $1.56 to $67.25 ahead of the earnings report but fell to $62.75 in after-hours trading.

The $165.1 million in sales represents an 85 percent improvement from the year-ago quarter when it pocketed $20.4 million, or 11 cents a share, on sales of $89.3 million.

“Clearly, we’re in a much slower macroeconomic climate,” CEO Louis Tomasetta told analysts during a conference call Monday. “This will impact our sales in the second quarter. However, we don’t see any major changes in demand in the optical market.”

Communications sales in the quarter surged to $158.3 million, or 93 percent of total sales, up 21 percent from the fourth quarter and 102 percent from the year-ago quarter.

Telecommunications sales rose to $95 million, up 19 percent from the $79.5 million it recorded in prior quarter. Datacom sales, which include storage chips, rose 24 percent sequentially to $58.8 million.

“We continue to see stronger revenue from the upper layer of the architecture mainly because of the design wins we’ve had in the past six quarters,” Tomasetta said. “That market for this new technology is three-times larger than the current physical market, estimated at more than $800 million in 2001 and more than $3 billion by 2004.”

CMOS-based chips contributed 18 percent of sales this quarter and Vitesse expects this sector to grow into the mid-30s by the second half of 2001.

Lucent, which was its largest customer coming into the fiscal year, accounted for $14 million of sales in the quarter, down from $19.2 million last quarter. Cisco Systems (Nasdaq: CSCO) ordered more than $16 million worth of chips this quarter, up from $14 million last quarter.

The book-to-bill ratio for communications chips in the quarter was 1.09 to 1. Gross profit margins checked in at 68.3 percent in the quarter, up 1 percent from the fourth quarter.

Ahead of the earnings report, Richard Faust, an analyst at Adams, Harkness & Hill, predicted Vitesse would earn 24 cents a share on sales of $164.5 million.

“I wouldn’t be surprised if Vitesse topped my estimates by a bit,” he said. “The stock has been overlooked a to some degree. They’re a prominent player in the higher end communications chip sector and have a top-tier management team.”

Alvin Kressler, an analyst at Lehman Brothers, was expecting sales of $164.5 million and a profit of 24 cents a share.

“This company is growing at more than 70 percent year-over-year even though its largest customer is having all this trouble,” he said. “The newer parts of its business, the high-end optical chips, are starting to do well. From a valuation standpoint, it’s a good value now.”

Last quarter, Vitesse hurdled analysts’ estimates when it earned $40.3 million, or 21 cents a share, on sales of $138 million.

Vitesse shares moved up to a 52-week high of $115.69 in March before falling to a low of $35.63 in May.

All 18 analysts tracking the stock maintain either a “buy” or “strong buy” recommendation.