Officials at Camarillo-based Vitesse Semiconductor Corp. have to wonder what they need to do to get it right. They have spent the last three years broadening their business through acquisitions and development of a host of new products. Over the past quarter, those new services have begun to hit the market and will eventually allow companies that form the backbone of the Internet to buy all of their integrated circuit and communication system needs from one vendor Vitesse. Despite all this, the company’s stock has been downgraded by several analysts and has steadily dropped since hitting a 52-week high of $115.69 in March. The stock as of early December was trading around $59. Putting the best light on the subject, Vitesse Chief Operating Officer Chris Gardner chalks the stock performance up to market fluctuations. “All our peers are down more than Vitesse,” Gardner said. He further said that the company has not changed any projections about its future financial performance, or any other information given to analysts and investors. He declined to comment specifically on the analyst downgrades. Vitesse stock got a small boost after the Standard & Poor’s 500 added the company to its index on Dec. 5. Analysts polled by Zacks Investment Research split on their ratings of the company: Eight rate the company a “strong buy,” nine a “moderate buy.” Kaufman Bros. analyst Alvin Kressler downgraded Vitesse in November, just as he did other companies he covers in the semiconductor industry. “Long term, I still do like Vitesse and a couple of other players,” Kressler said. But in the short term, Kressler said, he has concerns about a slowdown in demand for Vitesse products because companies it sells to are seeing a slowdown themselves, and many upstarts are going out of business or are on tightened budgets. Kressler said he is also concerned by reports that inventory for semiconductor companies is above historic levels. That view, however, is not shared by everyone. Jeremy Bunting, an analyst with Thomas Wiesel Partners, rates the company a “buy” because he anticipates strong growth potential with its newest line of products. “From a fundamental business standpoint, they are in an accelerated growth curve,” Bunting said. Vitesse’s quarterly growth has ranged from 10 to 11 percent a couple of years ago to 19 to 20 percent in the latest quarter. Unlike many of its peers who are watching their growth rates dwindle, Vitesse is on the upswing because of those new products that cater to new markets, such as network processors. “Even though they’re strongly positioned in the higher-speed transmission market, at some point they need a higher growth driver,” Bunting said. For the year ended Sept. 30, Vitesse reported net income of $126.3 million (67 cents per share) compared with net income of $61.4 million for the like period a year ago. Revenues were $441.7 million vs. $281.3 million. Vitesse makes high-bandwidth communication integrated circuits for networking. The company’s products are sold to systems manufacturers of communications equipment and automated test equipment that build the framework of the Internet and high-speed transmission lines. Vitesse’s expanded product line has moved from the layer of physical devices to a higher one that includes network processors, switches, routers and other communications tools for network transmissions. In the next five years, for example, Internet service providers using Vitesse’s newer communications tools can sell premium bandwidth services to customers for certain periods of time, Bunting said. So, for instance, if a company has a video conference call scheduled for one morning, they could pay for increased bandwidth for just that morning. Vitesse is also expanding into making switchers, routers and everything else in between. It has allowed the company to move into the network processor market, which is also growing. “We’re talking to guys who come in from multi-platform switching to networking process to traffic managers,” Gardner said. “Effectively, they can build their entire box with Vitesse products.”
