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VTSS Investor Forum

VTSS vs. Competitors

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So I did a few calculations to support my letter to Rich Yonkers, CFO of VTSS. I said that they needed to reduce headcount and spend less on R&D if they wanted to be profitable and that there was no excuse for not being profitable. For example. If you look at R&D as a percent of Rev., VTSS spent $13.674 vs. Total Rev of $35.533 or 36.4% spent on R&D.

By comparison, MSPD results shows they came in at 30.6%
PMCS comes in at 27.2% this quarter. If MSPD had 36.4% of their Revenue spent on R&D, they would have wiped out over 2/3rds of their profit.

The current headcount of VTSS is 476 as compared to MSPD headcount of 486. If you look at the Rev. per employee numbers, MSPD makes $828,250 versus VTSS makes $788,508/employee.

As you can see others manage their results to be profitable and managing their % spent on R&D. VTSS must not let just the Engineers drive the business. You can't make up profitability by making it up in Volume. You must manage costs commensurate with expected Revenue and Costs. It's a no-brainer.

Posted by Grandpubha - 14 years ago

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I think you have to check your rev per ee for both VTSS and MSPD. Also rather than decrease r&d, perhaps VTSS can give us some indication what they are targeting as the market for all their new products. At one point I think the planned a 10 times r&d for the revenue needed over a 5 year period. That would equate to a $300 million annual runrate based on the $150 million they said they have invested over the last 3 years.

Posted by vtssin07 - 14 years ago

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I was only calculating this on a quarterly basis, not for the full year.

Posted by Grandpubha - 14 years ago

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vtss rev is $74,649 per qtr per ee

Posted by vtssin07 - 14 years ago

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$37.533 Million in Revenue
$13.674 Million on R&D & Eng.

That yields 36.4% R&D to Revenue.

PMC Sierra is at 27.2% and MSPD is at 29.4%. I got this by looking at their Q2 Consolidated Statements. That is the point of my letter to Yonkers. VTSS spending is too high for the Revenue they are producing. Their problem is not the products, but rather Sales and Marketing talent. So the company had better take that into their calculations or they never will be profitable. This has always been their problem plus the fact when Engineers run a company their business acumen is often lacking.

You are correct on Rev. per employee, as I was off by a factor of 10 when I did the division. It comes out to $78,851 of Rev. per employee per quarter for VTSS. I am a mere mortal and was rushed when I posted earlier. :)

Posted by Grandpubha - 14 years ago

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Mr. Grand, have you received a reply from our illustrious CFO yet??? I am assuming the answer is no, even though in the CC CRG closed the call by telling investors both he and RY were there to talk. Of course, Gardner's words have no value.

I commented in a different post that I do understand some of the issues Vitesse had with the turns business and how it contributed to the revenue shortfall. However, the disturbing part for me is that Vitesse plays in the same semi world as everyone else and Vitesse is the ony one whose revenue tanked, where everyone else was capacity limted from achieving even higher revenues.

There is no positive spin on that, and it means that Vitesse is truly losing market share, or equally bad that Vitesse spent several years worth of R&D and guessed wrong on where the market was headed and developed products for markets that are growing far more slowly than the ones their competitors chose to address. Yet in the Q1 2010 CC CRG closed out by saying how the $150 million in R&D over the previous several years was starting to pay off (it has for him with his fat salary and benefits)

V-Scope, Eco Ethernet and such are not generating the revenues needed. Maybe the previous sales VP did a very poor job in addressing market opprotunities (though all I ever heard from CRG was on all these wonderful design wins) and that is why Perna was hired.

Posted by altrfan - 14 years ago | Updated 14 years ago

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Altrfan, haven't heard even a peep, nor do I expect to.

Posted by Grandpubha - 14 years ago

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I wasn't going to reply to this thread since I speak from ignorance in this area. But, that never stopped me before. So, here it goes:

1.) From the CC CG mentioned there were two reasons for the revenue decline: supply chain constraints and decreasing demand. Like everyone here, I can't buy into what he says when we compare the revenue decline to the performance of our competitiors. However, I think he did say that the number of turns for VTSS is slower than its competitors due to the length of time it takes to complete the IC products. So, to me, that means when there is an industry slow down, VTSS will be hurt harder in the initial stages as their inventory will always be higher as things work through WIP at a slower rate. And, as our competitors or end users seem to be forecasting flat revenue for the next quarter (i'm using CSCO as the main example here), our expectation is for 10% growth from the last quarter. So, as dimsal as this quarter was, I am wondering if VTSS may have a true disconnect to the industry in relative terms.

2.) Grand, thank you for writing the letter. I agree that they need to be very cautious with their R&D at this point. Keep in mind, however, if demand truly is drying up you will see that percentage decrease as well, HOPEFULLY. If they would have posted revenue of $41 million then we look very comparable and I think that is more of what they project going forward so they won't be drawing in the R&D reins that quickly.

On another note: It appears as if there is a lack of motivated sellers. I put a bid for 2000 shares @3.70 today (all or nothing) and it took about 40 minutes to fill. It's an hour later and only 276 additional shares were sold, again at 3.70.

I do miss our #1 pumper at this point. Has he been on the yahoo board?

Anyway, it's good to hear from all of you again. If we ever got together for a disconetented shareholder meeting I'm sure it would be great disucussion.

Posted by matt38 - 14 years ago

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I called Yonker last Thursday leaving a message asking him to return the call to discuss some of the financials related to the business. Today is Tuesday and i have yet to hear from him. Is he on vacation? I will be calling again today, asking him the same question. If two more days pass with not response then i will begin to call Gardner. My main question will be relisting and what the time frame is regarding that. I realize he stated fourth quarter during the cc but I want him to give me an explanation on the process up to relistment day and if share price being sub $4 will have any affect. If it does then he has been seriously lacking in job performance.

Posted by christ3opher - 14 years ago | Updated 14 years ago

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Altr - they sure are losing market share. Their competitors, their customers and the market researchers are all showing nice growth in networking hardware and carrier ethernet. Only Vitesse is going backwards. Gardner tried to dance around this issue on the call but the facts speak for themselves (see table below - they were down sequentially in every measure). I just hope it's a temporary situation as customers hold off buying older products in favor of newer products in the pipeline.

Q2 Q3
carrier 17.2 15.0
enterprise 19.8 18.7
legacy 6.7 3.8

north amer 17.3 13.9
asia 18.6 18.1
europe 8.0 5.6

Posted by thereinman - 14 years ago | Updated 14 years ago

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I would agree with you Reinman. VTSS is losing market share. The very definition of losing market share is when your are growing at a slower rate than the market. And when you are actually shrinking while the market is growing there can be no question you are losing market share.

Has anyone else noticed that at least the past 2 quarters when management has tried to defend the companies dismal showing in revenue vs their competitors that they have invoked the "we count inventory on a sell through basis and no one else does" argument. This basically is saying our competitors are stuffing the channel and we can't (which isn't true) so that is why our revenue is lower. I have some definite feelings on this "sell through" method. But for right now. To management, if you don't like your "sell through" method of accounting then get rid of it and go back to the other way. But stop trying to use it as a reason for the shortfall in revenue.

Posted by dlog - 14 years ago

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Strong point DLOG! the "we count inventory on a sell through..." is nothing more than more BS. Y not follow the successful companies formula. Competitors are eating our lunch but i believe the new products will change that; THE NEW PRODUCTS ARE COMING OFF THE DRAWING BOARD ON SCHEDULE RIGHT??

Posted by GARIF - 14 years ago

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Hi dlog,

You know no one hates these DB more than I do and I can't remember ever defending them - not sure if I am here - but if you think back a long time ago, they use to call LT, "Lou the channel stuffer" and that was just one of the major problems that got us where we are today.

So perhaps CRG did learn something in his 4+ years of BF all of us here, and that was not to stuff the channel anymore with their almost worthless product.

We need new management, but I am afraid time is quickly running out on us, this stock is TOXIC, it has given us all VD, herpes, and it looks like Aids to boot.

Posted by G - 14 years ago

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Dlog - the sell through excuse doesn't hold up with their largest distributor Nu Horizons (over 1/3 of their revenue) growing at 14% sequentially last quarter (ending May 30). Apparently other suppliers had no trouble reaching end users through Nu Horizons.

Gardner claimed that sales have picked up again after tanking in June. If so, I would expect to see some more insider buying since the stock is now almost half the price is was the last time the insiders brought shares. Without such buying I have to assume that sales are still in the toilet.

Posted by thereinman - 14 years ago

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Alt,

Great analogy by the way. I'm a Bills fan (yes we do still exist) and I always thought things could be worse... meaning I could be a Lions fan. Watching what Millen did to the Lions over his tenure was not just gross negligence, it was malicious destruction. And, I believe that holds true with CRG because he won't get out of hiw own way. He knows he sucks and should have the integrity to thank the company for his use as a personal piggy bank and move on. I left a job once because my skill set was not in line with the corporate expectations. I can remember during the exit interview my manager kept saying we really believe you will be successful if you give it time. I said I have been here for two years and I've made a negligible positive impact so far and I don't see my contribution improving significantly in the near future. I don't know how some people just can't come to that same conclusion.

I know CRG inherited a mess and I was patient. However, the last year was a big opportunity to begin restoring value and the growth has not materialized. When you look at the ROI (and I mean revenue from R&D) of this company, I believe, it is the lowest in the industry. I could be wrong.

Posted by matt38 - 13 years ago

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