CSFB-Ratings / U.S.

CSFB Tech Daily Friday, January 26, 2001
Jon Mano (212) 325-4530 www.tech.csfb.com
1
CTN 365.36 -15.32 -4.02%
RESEARCH UPDATE
Check out the Weekly Update on Page 6


Ericsson (ERICY-$13.00-Cap $103B-Buy)
Marc A. Cabi 415-836-7701/Ian Burgess +44 20 7888 0271
Reducing recommendation from Strong Buy to Buy FY00A: $0.14 FY01E: $0.21 to $0.23
· The company guidance for 2001-revenue growth of 15-20% and EBIT margins of 6-8%-is
consistent with lower profit and earnings numbers than our current forecast. We expect to
finalise the model after the conference call today, but see forecasts of around SKr2.00-
SKr2.20 for 2001 and SKr3.30-3.50 for 2002.
· The reduction relates primarily to the infrastructure business where the company is
aggressively ramping up its 3G investment, increasing its cost base ahead of the revenue
generation. We expect this to compress margins in this division with the potential for further
margin erosion in 2002.
· We remain convinced that Ericsson will be the dominant player in the high-growth 3G market
and that profitability growth over the medium term should be very strong. The near-term
catalysts for a re-rating are however likely to be absent and see the stock trading in a range
for the first half of this year. The lack of visibility in the coming quarters increases the
investment risk.
· We expect the company’s growing position in mobile infrastructure to be rewarded in share
price appreciation once visibility improves and upgrades to the forecasts become more
prevalent-features that we expect to see from the middle of this year. We would advise
accumulation of the stock on price weakness.


PMC-Sierra (PMCS-$95 7/8-Cap $17.7B-Buy) Glavin/ Eberhart, 415-836-7715/67
PMCS: Lowering Rating, Estimates, Price Target FY01E: $0.88 (was $1.70)
· We are lowering our rating to Buy, until the visibility picture clears, and our price target to
$90. FY2001 EPS declines to $0.88 from $1.70, on revs. of $764 million (was $1.2 billion).
· We believe that other, but not all, communication IC and semiconductor companies could
see another round of downward revisions this quarter.
· While PMCS reported slightly better 4Q00 results, terrible visibility and massive inventory
excess in the channel prompted the company to cut forward guidance significantly. PMCS
revenue grew 17% q/q and earned $0.34 (in line with our estimate and consensus).
· PMCS is guiding for 1Q revenue to be down 28% q/q, as its backlog shrank from $150MM in
late November to $143MM today, with a b-t-b “significantly lower than 1”, including eight of
its top 10 below parity: Cisco, Lucent, NT, Alcatel, Marconi, Siemens, Juniper, and
Sycamore.
· Channel inventory (including CEMs) increased from 4-6 weeks in early 4Q to 6-10 weeks by
the end of 4Q, due to insufficient demand. As this inventory burns, PMCS should see an
inflection point in growth followed by “normal” growth rates. The big question mark is when.


Qualcomm (QCOM-$73.94-Cap $50.7B-Hold) Cabi/ Long, 415-836-7701/8626
‘Footnotes’ it over the Finish Line. FY00E: $1.05 FY01E: $1.22 FY02E: $1.55
· Qualcomm reported earnings and held its conference call after the market close yesterday.
The company posted EPS of $0.29, a penny ahead of $0.28 consensus, but cleaned up
through 8 special item footnotes.
· The company posted light revenues of $684M versus our estimate of $739M due to a major
reduction in Globalstar revenues and a slowdown in the OmniTracs business. The core
licensing and chipset business came in with light revenue, with growth in both segments
falling shy of lowered expectations at 25.9% and minus 6.3% respectively.
· The EPS upside was helped by a favorable tax rate and equity sale of investments, which
added $0.02 in EPS.
· We believe the business is seeing some signs of recovery, and expect North America at its
relatively low 35% wireless penetration and K-DDI, which accelerated growth toward year-end
to both drive renewed growth.
· 'We are revising estimates to reflect a new tax rate and the company’s shift to account for
equity gains in EPS. Our new FY01 is $1.22 versus $1.18 and our FY02 EPS estimate is
being introduced at $1.55.


BroadVision (BVSN-$14 7/8-Cap $3.9B-Hold) Brent Thill 415-836-7712
Lowering Rating to Hold from Buy
· Q4 total rev up 14% q/q to $135.6M, $5.0M or 4% above our estimate, with low margin
services driving majority of upside. EPS of $0.01 was below our/consensus $0.05 est on
significantly higher than expected operating expenses.
· New customer adds down to 92 (vs. 115 in Q3 and 136 in Q2), while we believe co. added
significant sales/development infrastructure to support new MarketMaker and InfoExchange
Portal products (together, up to 45% of Q4 rev) and upcoming 6.0 product release.
· New cost structure and flat top-line guidance substantially reduce operating margin
expectations in 2001 and beyond. We are modestly lowering our 2001 rev ests to $605M (48%
growth) from $612M (51% growth), while reducing our 2001 EPS est to $0.17 from $0.25.
· Downgrading to Hold from Buy as company navigates to smoother waters.


JDS Uniphase
(JDSU-$55 3/16-Cap-$55.9B-Buy)
Parmelee/Mallon, 212-325-6191/9034
FQ2:01 In-Line w/ Expectations; Long Term
Fundamentals Remain Intact
FY01E: $0.82, FY02E: $1.10
· Excl one-time charges and amortization exp,
JDSU posted FQ2:01 EPS of $0.21, above our
$0.20 est and First Call consensus of $0.19; As
anticipated, fine tuning FQ3:01 revenue to 7%
seq grwth to reflect customer inv adjustments
and uncertain near term capital spending
plans; Adjusting F2002 sales to $5.7B from
$6.15B and maintaining EPS est. of $1.10.
· JDSU top-line was $925M, less than 1% below
our $930M forecast; Actives up 21.1% seq
(30% sales) and passives up 15.8% (59%
sales); Mgmt indicated lead times in certain
passives decreased to 5-9 weeks from 8-12
weeks, while lead times in actives remained at
high end of 8-12 weeks range; Book to bill > 1.
· Products w/ particularly strong grwth in qtr incl
10Gbps transponders, source lasers (45% seq
grwth in unit vol) , and OC-192 modulators (up
50% seq); We believe new products that will
play an important role in future grwth incl
MEMS (sampled prototype of MEMS
attenuator) and dynamic gain equalization
module for 40Gbps; LU and NT were 10%+
customers (vs LU, NT and ALA in FQ1:01).
· Balance sheet strong; Accounts rec. DSOs
increased seq to 61 days from 57 days and
inventory turns were flat seq at 4x; Cash flow
from operations was $134M; We est. balance
sheet metrics will remain strong in March Q
despite customer inventory adjustments.
· We believe JDSU’s revised earnings guidance
removes an overhang on the stk; Moreover the
projected closure of the SDLI merger in 2/01
will serve as an additional catalyst; View as
core holding; Reiterate BUY.
Tech Group Hotbox
ERICY Rating Downgrade
PMCS Rating Downgrade
BVSN Rating Downgrade
QCOM Revising Estimates
STM Lowering Estimates
EPNY Raising Estimates
CORV Raising Estimates
ATML Raising Estimates
MCHP Lowering Estimates
INFA Raising Estimates
MCRL Lowering Estimates
ARTG Raising Estimates
UTSI Raising Estimates
SAPE Lowering Estimates
HOMS Raising Estimates
DCTM Raising Estimates
OTGS Raising Estimates
VSEA Lowering Estimates
EGLS Lowering Estimates
SIMG Lowering Estimates
NTRO Lowering Estimates
BSQR Raising Estimates
NENG Lowering Estimates
TNSI Revising Estimates

STMicroelectronics (STM-$44.6-Cap $42.0B- Buy) Tim Mahon, 650-614-5040
Reports Good Results in Tough Environment; Visibility Weakening
EPS 2001: $1.76 (was $1.99)
· STM reported revenues of $2.19B, missing our est by roughly $24M (1%), though EPS of
$0.50 beat our est by $0.02. Gross margins of 47.4% missed our estimate by 20bps. The
EPS upside was primarily driven by higher interest and other income, as well as a lower tax
rate.
· The co reported that order activity began to soften towards the latter half of the qtr and
overall orders for the qtr decreased seq. Management attributed its decreasing visibility to a
broad-based inventory correction in the electronics industry.
· The co believes that its Mar-qtr will be down seq, but that the inventory correction currently
dampening industry fundamentals should be over by the Jun-qtr. Though we believe STM
will outgrow the overall market in any sort of environment, we believe fundamental demand
continues to weaken throughout the industry and likely will remain soft through at least the
first half of CY01.
· Accordingly, we are taking a slightly more conservative stance with our model than
company guidance. Our new 2001 rev est decreases to $8.7B, from $9.9B and $1.99. We
are maintaining our BUY, as we believe STM is one of the premier semi manufacturers in the
world.


Openwave (OPWV $67.94-Cap $11B-Strong Buy)
Marc A. Cabi, 415-836-7701/ Susan Passoni 212 538 5496/Todd Raker 212 325 7156
Verizon Implements Openwave Solutions FY001E$.26, F2002E $.58
· Verizon Wireless announced its intention to implement Openwave Systems over-the-air
provisioning solutions, allowing Verizon customers the ability to access their minute
allowances, check their statements, manage their account features, and download new
software all from the interface on their handset.
· The Openwave Provisioning Manager Mobile Edition will also allow Verizon to provide
efficient and cost reduced customer service to their more than 27M customers. OPWV’s
solution works in conjunction with its mobile Internet gateway and is available immediately in
some areas. We expect handsets supporting the feature will roll out in Q1:01.
· We believe that Verizon’s implementation of OPWV’s solution is a validation of OPWV’s
ability to upsale existing customers and to secure its foothold with large wireless operators.
We expect the company to continue productizing existing technologies and anticipate a
detailed product roadmap during OPWV’s upcoming analyst day. We reiterate our Strong
Buy.


E.piphany (EPNY-$36.25-Cap $2.4B-Strong Buy) Thill/Torrey 415-836-7712 / 6306
Q4 Ahead of Ests; New 911 of Customer Interaction
· Total rev $49.2M, $1.8M above our estimate. 38% sequential license growth fueled the
upside (vs our 21% est). Beat EPS by $0.04 - ($0.08) vs ($0.12) est.
· Based on strong visibility and mix towards higher margin license revenue, we are raising
CY01 rev ests by $3M to $277M (118% growth). Raising EPS by $0.02 to ($0.10).
Establishing CY02 ests of $401M (45% growth) and $0.41.
· Initial ASPs jumped 39% to $800K. Customers continue to make large commitments to
EPNY’s foundation. We expect further ASP expansion. DSO was flat at 50, and deferred
revenue increased $5.1M to $23M.
· Outlook looks bright. We have heard a handful of elephant sized deals have already closed
in Q1. With 25% of F100 on board, we expect addt’l high-caliber customers to follow.
· Based on an updated DCF model (110% 5-year revenue CAGR to 2004 off very small 1999
revs, 19.5% discount rate, and 25% LT operating margin target), we are establishing Dec-31-
2001 price target of $60, representing 66% upside from yesterday’s close.


Corvis Corp.(CORV-$23 ½-Cap $7.7B-Strong Buy) Parmelee/Mallon, 212-325-6191/9034
CORV Delivers Solid Q4 Results; Boosting Estimates FY01E: $(0.23)
· CORV posted Q4:00 sales of $46M, above our official estimate of $35M and our previewed
range of $37-41M; earnings loss per share equaled $(0.07), in line with our ($0.07) forecast
and consensus estimates; Modestly raising 2001 revenue projection to $320M from $305M
and EPS to $(0.23) from $(0.24).
· Highlights include commercial deployments at Broadwing (100% of rev in qtr), successful
field trial at Williams (revenue recognition to occur in Q1:01), and initial revenue recognition
on CORV all-optical switch.
· CORV has made significant strides in new product initiatives including OC-192(c)
connectivity support on its systems for H1:01 (on-track), commercial availability of optical
protector platform, and a scheduled alpha release of a new multi-Terabit edge switch by
year-end 2001; moreover, despite delays in finalizing capital spending budgets and ongoing
capital markets issues, CORV on-track to secure 1-2 additional customers in H1:01.
· Balance sheet strong with $1.0B in cash and cash equivalents; accounts receivables DSOs
were 32 days; Although inventory advanced by $95 million sequentially, the increase was
primarily raw materials required to ensure CORV’s ability to meet customer requirements.
· Although recent lock-up release (76% of shares outstanding) could create some near-term
selling pressure, we view current price as attractive at 24.1x 2001 sales estimates; rate
shares Strong Buy.
Atmel Corporation


(ATML-$14.81-Cap $7.3B-Buy)
Tim Mahon, 650-614-5040
ATML: Bucking the Trend; Grows in Q4 and
Guides UP
EPS 2001: $0.80 (was $0.79); Price Target: $18
(no change)
· Atmel reported rev of $574M and EPS of
$0.18, above our estimates of $568M and
$0.17, respectively. EPS upside to our est was
a combination of lower than expected share
count and higher than expected interest
income. Gross margins of 44.9% increased 50
bps seq and exceeded our estimate by 30 bps.
· Given the environment in the fourth qtr and
expectations (including ours) that growth for Q1
would be nearly impossible, the co’s results
and growth forecast (if achieved) is
outstanding. Flash memory, which seems to
get all the press nowadays, was up approx 4%
seq and, for once, wasn’t the highlight. The
company’s MCU and logic business was up
approx 19% seq, mainly driven by smart card
ICs (up 50%). We think Atmel is benefiting
from its alliance with Gemplus, one of the
leading smart card suppliers in the world.
· We are maintaining our 20% 2001 rev growth
for Atmel. Consistent with our industry
downgrade in Dec, we believe the co's current
business and customers will grow 11%, but we
believe the real kicker is two contracts, one
with Siemens and one with Matsushita
(unannounced), that may contribute $250M in
rev in 2001.
· The co is trading at premium of 15% and 7%
to its historical average P/S and P/B,
respectively, and an 84% and 77% premium to
its historical low P/S and P/B, respectively.
Atmel is one of the first semi stocks we would
aggressively buy once industry fundamentals
show any signs of improving.


Microchip Technology (MCHP- $26.31-Cap
$3.3B-Buy)
Tim Mahon, 650-614-5040
MCHP: Reports In-Line With Pre-Announced
Guidance
2001E: $1.27 (was $1.28); 2002E: $1.37 (was
$1.48)
· MCHP reported Dec-qtr (FQ3) rev of $176.4M;
roughly in-line with our estimate, though EPS of
$0.34 beat our est. by $0.01, owing mostly to
slightly higher than expected “other” income and a
slightly lower share count. Gross margins of 55.2%
were another record for the co, though they
narrowly missed our est by 30 bps.
· The distribution inventory correction that forced the
co to preannounce weak earnings in mid-Dec,
persisted through the end of the qtr. This decrease
in bookings has forced the co into a situation
where 40% turns business is needed to hit its Mar-qtr
guidance.
· Management believes that the inventory correction
issues that plagued the company in the Dec-qtr will
be largely corrected by mid-Feb. As a result
though, the co is guiding rev down slightly for the
Mar-qtr; it believes growth should resume in the
Jun-qtr and beyond. We are slightly more
concerned about the macro environment and the
impact this could have on the growth in the
markets Microchip serves over the next several
quarters.
· As a result, we are modeling a 2% seq rev decline
in the Mar-qtr to $186M (including TLCM’s
numbers in Dec for comp reasons). FY01 revenue
and decreases to $697M $1.27, from $688.4M.
Our new FY02 rev est is $815M, down from
$805M. However, we are maintaining our BUY
rating, as we continue to believe that MCHP’s
business model offers investors unparalleled
stability over the longer-term.


Informatica (INFA-$32 7/8-Cap $2.8B–Strong Buy)
Wendell Laidley/Marie Kluth (415) 836-7716/7713
Analytic App Strength Complements Solid Core Platform Revenue in Q4:00, Increasing
Estimates FY00E $0.13, FY01E $0.26
· INFA reported strong Q4:00 revenue and EPS excluding charges of $51 M and $0.06,
exceeding our estimates of $46 M and $0.05. Consensus EPS was $0.05.
· INFA ended the quarter with a high cash balance from the Company’s successful follow-on
public offering in the quarter, generating $14 M in cash from operations and posting DSO up
one day to 53 days, below the Company’s target range of 55-65 days. Deferred revenue
increased 28% sequentially (almost all deferred license) to reach $23 M.
· INFA increased the number of new customers added in the quarter to 123, (2nd highest
individual increase, compares to 115 in Q3:00 and 134 in Q4:00), and ASP rose to $232K
(not including Motorola), up 3% from $226K in the prior quarter.
· The Company increased revenue from analytic applications to 10% of total revenue (about
$5 M), and closed its largest analytic applications sale (and the largest in the Company’s
history) with Motorola in Q4:00.
· Moderately raising our estimates for Q1:01 to $53 M and $0.05 [from $50 M and $0.05], for
2001 to $236 M and $0.26 [from $231 M and $0.25], and 2002 to $319 M and $0.38 [from
$319 M and $0.34]. Reiterate STRONG BUY with 12-month price target of $58 (split-adjusted).


Micrel, Inc. (MCRL-$45.4-$4.3B-Buy) Michael T. Masdea, 415-836-7779
Great Q4, Great Year, Tough Environment FY01E: $0.87 (was $1.00)
· Micrel reported Q4 EPS of $0.25, in-line with our estimate and the consensus estimate of
$0.25. Revenue of $92.8 million came in $0.9 million light of our revenue estimate. The
company guided to a 5% to 9% sequential revenue decline for the March quarter, versus our
previous 1.1% estimate.
· As we stated in our December downgrade of the Analog industry, we believe that we are
facing a deteriorating environment in every end-market addressed by analog companies.
Accordingly, we are less optimistic on our outlook for 2Q and 2H:01, and believe there is still
risk to prevailing estimates and outlooks.
· While we remain cautious on the near-term outlook for analog, we remain bullish on the long-term
prospects and would suggest investors begin to pick their favorite names to get into at
the right valuations. We believe Micrel is a name to have on that list.
· We are revising our estimates to reflect the company’s near-term outlook. Our new 2001
revenue and EPS estimates are $355.4 million and $0.87, down from $397.1 million and
$1.00.


Art Technology Group (ARTG-$25-Cap $1.8B-Strong Buy) Brent Thill 415-836-7712
Q4 Results Shine
· Q4 revs up 36% q/q and 373% y/y to $62.8M, $7.3M or 13% higher than our estimate - EPS
of $0.10 was $0.02 better than our/consensus estimate. License revenue up 38% q/q
$47.2M, 17% above our est.
· Metrics very strong across the board -- 131 new customers (vs. 112 in Q3), DSO of 75 (on
low end of stated target), deferred rev up 33% q/q, and operating margin up 210bps - as
customers and major channel partners embrace ARTG platform for customer lifecycle
management.
· Raising CY01 rev est to $328M (101% growth) from $311M (99% growth), and establishing
2001 rev est of $432M (32% growth). Raising CY01 EPS est to $0.53 from $0.50.
· Trading at 5.9x 2001 revenue (75% of mean for customer management universe). Based on
DCF valuation (87% 5-year revenue CAGR to 2004 off a very small 1999, 18% discount rate,
and 20% LT operating margin target), we are establishing a Dec-31-2001 price target of $37,
representing 48% upside to yesterday’s close. Re-iterate our Strong Buy rating.

Electronic Arts (ERTS-$39.56-Cap $5.1B-Strong Buy) Heath Terry, 415-836-6322
Sony Cuts PS2 Shipment Projections, Again FY00A: $1.01, FY01E: $0.24
· Sony revised down their projection for total worldwide PlayStation 2 shipments from 10
million by the end of March to 9 million. The reduction comes completely out of shipments
planned for Japan. Given reports of continued production problems with the graphics chip,
this reduction was expected.
· The company reported shipments of 1.46 million PS2 units into the U.S. during the holiday
quarter. While this is above the 1.3 million the company forecast, sell through data shows
that approximately 300k of these did not make it to retail in time to result in additional
software sales during the quarter.
· Electronic Arts will report earnings Tuesday, January 30th after the close. Management will
host a conference call at 5:30pm EST. The dial in number is 719-457-2649, confirmation
number 732524. The current range of estimates for both EPS and revenues is very wide.
While we are officially towards the top of the range, we believe the numbers will likely be
below our estimates, but well above the bottom end of the range. The exact number will
depend on the amount of channel fill that occurred beyond the sell through numbers we
have.
· Again, Sony, to no one's surprise, throws a bump in the road. While we do not feel that
investors should feel rushed to buy ERTS ahead of Tuesday's conference call, our long term
thesis to owning EA has not changed: the interactive entertainment industry is at the
beginning of what we believe will be the largest growth phase it has ever experienced,
powered by a new generation of consoles, new internet business models, and an expanding
customer base. Investors should use any share price dips below $40 as buying opportunities
to buy this industry leader. We reiterate our Strong Buy and our $70 target.

UTStarcom
(UTSI-$23.88-Cap $2.5B–Strong Buy)
Tim Long, 415-836-8626 / Kirk Yang : +852
2101-7182
Another Great Quarter - Raising Estimates
FY01E: $0.61 FY01E: $0.83
· UTStarcom reported very strong December
quarter results on Thursday night. The
company reported revenues of $127 million
and EPS of $0.16, well above our estimates of
$115 million and $0.14. Backlog totaled $192
million at the end of 2000, significantly higher
than the $72 million recorded at the end of
1999.
· Demand for the company’s wireless PAS
system continues to exceed our expectations.
We expect a steady flow of wireless contract
announcements throughout the year.
· We are increasing our EPS estimates from
$0.57 to $0.61 in 2001, reflecting revenue
growth of 38% to $513 million. We are
establishing a 2002 EPS estimate of $0.83 with
a revenue estimate of $700 million.
· We remain confident that UTStarcom will be
able to grow EPS by 40% per year over the
next several years. Most profitable
communications equipment companies in our
universe are trading at 1.0 to 1.5-times their
growth rate. Even valuing UTStarcom at the
lower end of this range, we believe the stock
should trade to the mid-30s in the next 12
months. We reiterate our STRONG BUY rating.

Sapient Corporation
(SAPE-$16.63–Cap $2.2B-Buy)
Wolfenberger/Chubrik/Sturtz, 212 325
6714/6183/415 836 7711
Near-term Industry Outlook Still Cloudy
FY01E: $0.45, FY02E: $0.60
· Reported F4Q00 revs & EPS in-line w/ pre-announced
guidance of $139.2M & $0.10, resp.
Lower pricing/utilization contributed to 48.1%
GM, down 250 bp Q/Q, lowest ever for SAPE.
· Continuing to experience project push-outs as
demand hasn’t materially improved given
economic uncertainty weighing on customer
decisions. Approx. 50% of deferrals beginning
to come on slowly, although balance remains
on the horizon & difficult to predict.
· Int’l greater than 11% of Q4 revs vs 10% in Q3.
SAPE experiencing strong growth in both UK &
Italy, while Sydney experienced tough Q4.
India beginning to ramp (80 billable vs 40 Q3) -could
represent next leg of growth.
· Metrics: rev/billable $220K vs $249K Q3, util
60% vs 69% sequen, 160 billable adds vs 125
est, T/O <15%, & DSO 47 down 6 days. Sense
oversupply of consultants becoming an issue –
like competitors, think potential for layoffs exists
if demand fails to ramp over next 90 days.
· Co lowered guidance to low-end of Street ests
($600-640M rev & $0.48-0.54 EPS). Given
general lack of visibility, lowering our FY01 rev
& EPS ests below range to $590M (up 17% y/y)
& $0.45 from $604M & $0.50. Est’s assume util
trough in F1Q00 & Q/Q improvement in 01.
· Issues at SAPE clearly have implications for
rest of industry. Generally, still recommend
remaining on the sidelines on small cap
integrators from a fundamental standpoint.
SAPE’ s BUY rating a reflection of its industry
position, mindshare, & S&P 500 status.

Silivon Image (SIMG-$7.75-Cap $435M-Buy)
Charlie Glavin 415-836-7715
Makes Revised 4Q00 But Near-Term Visibility Worsens
CY00A: $0.06; CY01E: ($0.01)
· In line with our revised estimates and consensus, SIMG reported breakeven 4Q00 EPS on
revenue of $13M, which was down 10% Q/Q.
· However, due to a weak PC market and bad visibility, SIMG signi-ficantly lowered growth for
2001. A rebound (starting in 2Q01) is based not on PCs, but on growing non-PC business,
which we expect will grow to 25% from 5% of revs by 4Q01, to nearly 50% by end of 2002.
· Once new platforms are introduced, SIMG’s core growth should resume as DVI penetration
increases. Our thesis of “20/80/12” still holds in that once market adoption of DVI reaches
20% (expected 1H02), within 12 months should reach 80% (like AGP and USB).
· Lowering 2001 EPS estimate to a loss of ($0.01) on revenues of $55M (formerly $67M)-reflecting
9% Y/Y revenue growth for 2001. Given SIMG’s long-term strategy, maintain Buy
but $10 price target due to near-term demand environment.


Netro (NTRO-$7.81-Cap $400M -Buy) Tim Long, 415-836-8626
Netro Goes Retro - Lowering Numbers FY00E: ($0.18) FY01E: ($0.37)
· Netro reported 4th Quarter 2000 EPS of ($0.05) and sales of $22M, in line with our recently
reduced estimates. Gross margins declined by nearly 6% from Q3 levels of 26.7% due to an
unfavorable product shift mix.
· We are reducing our Q1:01 revenue estimates by $4.5M to $17.5M and taking our Q1:01
EPS down from ($0.06) to ($0.11). We are also reducing our CY 2001 sales estimates by
30% to $84.5M and CY:01 EPS from ($0.15) to ($0.37).
· We are lowering our 2001 numbers based on the low visibility of business with Lucent, the
company’s largest customer. A second half recovery would depend on a rebound at Lucent
and a ramp up at another OEM.
· Although we see no major catalyst in the first half of 2001, we are maintaining our BUY
rating based on the companies’ current trading range near its cash position of $367M.


BSQUARE Corp. (BSQR-$11.25-Cap ~$400M-Buy) Erach Desai, 617-556-5755
Devices Opportunity Remains Intact
FY01E:$0.24=>$0.26; FY02E:$0.34=>$0.36; PT:$32=>$20
· Reports Solid 4Q: As previewed, BSQR reported revenues of $17.9mm (+57% y/y), vs. our
$17.5mm estimate. Cash EPS (fully-taxed) was $0.06, in-line with our estimate and
consensus. Product revenues of $2.1mm were up 24% q/q. Microsoft (MSFT=$61.81; NR)
revenues comprised only 50% of total.
· Strong Operational Performance: Adjusted EPS of $0.06 was about 0.5cents better than our
estimate. Higher revenues, better gross margins, and higher operating margins contributed
about evenly for a combined 1cent benefit, vis-a-vis our estimate. This was partly offset (-0.5cents)
by lower interest & other income.
· Key Takeaways: Better gross margin, strong design-win momentum, and higher product
revenue content. DSOs perceptibly increased to 64 days (vs. 46 q/q) due to a late payment
(in January) of a major customer. Deferred revenues scaled back q/q as a function of certain
pre-paid silicon vendor deals meeting milestones ... not a backlog depletion.
· Estimate Changes: Despite economic uncertainties, management reiterated confidence in
existing conservative estimates. Our 1Q01 is unchanged. CY01 revenues rise by $1mm
and EPS is now $0.26, vs. $0.24. CY02 revenues also rise by $1mm and EPS is now $0.36,
vs. $0.34.
· Moderating PT, but Reiterate Buy: PT moves to $20, vs. $32, purely as a function of market
valuations. Even at current levels, stock was discounting some sort of lowering of
expectations which did not occur. Windows CE devices opportunity remains solid. Reiterate
our buy rating.


Network Engines (NENG-$3.00-Cap $100 M-Buy)
Kevin A. McCarthy 212-538-3809
Slightly Misses Preannouced Range FY01E ($1.40)
· NENG reported FQ1 revenues of $6.9 million, below the preannounced range. Operating
EPS came in at ($0.26), vs. our ($0.21) expectation. Gross margins were 25%, down
sequentially from 39%.
· We are lowering our FY01 revenue estimate to $43 million and EPS to ($1.40).
· Network Engines continues to be negatively impacted by abrupt slowdown in Internet
infrastructure buildout and increasing competition from larger competitors. Company is
betting that continued investment in sales & marketing and product development will allow
them to gain a greater presence in the rapidly growing rack-mounted server and storage
markets. These investments will accelerate the cash burn rate but the company should still
finish the year with cash of approximately 1.50/share.
· We continue to believe NENG has a credible opportunity to emerge as a visible participant in
the server appliance market. We also believe NENG would make an attractive acquisition
candidate given the stock’s low valuation relative to cash and the company’s proven ability to
produce leading edge technology.

Triton Networks (TNSI-$3.06-Cap $110M -Hold)
Tim Long/Marc A. Cabi, 415-836-8626/7701
Triton Networks: Making the Sacrifice
FY00E: ($1.37) FY01E: ($0.81)
· Triton Network Systems reported 4th Quarter
2000 revenues of $9.5M, roughly 6% ahead of
our recently reduced expectations. The
company also saw EPS in the quarter of
($0.27) vs. our reduced estimates of ($0.35).
· The results came ahead of our revised
estimates due to tighter expense controls and
stronger than expected late quarter shipments
to Fusion Communications and the company’s
North American customers.
· Management is taking a conservative stance
given funding issues at a couple North
American CLEC customers and reducing
guidance for 2001. In spite of the slow-down,
management still sees potential for 100%+
growth in 2001.
· We are encouraged by the company’s progress
on its product roadmap. The company is now
trialing its OC-12 product with customers and is
developing a Gigabit wireless product for
deployments late in 2001.
· We believe management is also taking the right
steps to contain costs and limit its cash burn
rate until it achieves profitability. Consequently,
we are reducing our 2001 revenue estimate
from $60M to $50M but also narrowing our loss
estimate from ($1.15) to ($0.81).

Artisan Components (ARTI-$10.50-Cap $150M-Buy)
Erach Desai, 617-556-5755
Royalties Up Sequentially; Higher Estimates
on Acquired Technology
FY01E:$0.18=>$0.20; FY02E:$0.34=>$0.42;
PT:$15=>$18
· Reports Better-than-Expected F1Q: ARTI
surprised on the upside for F1Q01 (Dec. '00).
Revenues fo $5.6mm (+12% q/q) were
modestly ahead of our $5.5mm target. EPS
was a strong $0.05, vs. our $0.02. Royalty
revenues were up 21% q/q, but slightly lower
than our aggressive point estimate.
· Strong Operational Performance: EPS of
$0.05 were 3cents better than our estimate.
The biggest impact came from higher-than-expected
operating margins (+3%, vs. -7%;
+3cents) and higher interest income
(+0.5cents), which was partly offset by a lower
engineering margin (-0.5cents).
· Estimate Changes: As suggested earlier,
estimates are rising primarily due to ARTI's
acquisition of the physical library business from
Synopsys (SNPS=$52.06; Buy). With the bulk
of the expense impact in F2Q, EPS declines
from $0.03 to breakeven. For FY01, howerver,
our previously conservative revenues rise by
$6.5mm, and EPS is now $0.20 (vs. $0.18
previously). We continue to be modestly lower
than guidance. FY02 EPS is now $0.42, vs.
$0.34 on higher revenues.
· Raising PT; Reiterate Buy: PT moves to $18,
vs. $15, based on CY02 revenues (even
though we are more conservative on the
multiple vs. prior). Key catalyst for ARTI will be
further strengthening in sequential royalty
momentum and operational efficiencies derived
from the combined operations. Reiterate buy
rating.
1
Index at close of previous day. Market caps (diluted)
calculated from latest 10Q filings.

CSFB Tech Weekly Update
The Tech Weekly Update is a feature that appears each Friday.
Catalyst Watch
· AMR’s Strategy 21 Jan 28–30, Carlsbad, Ca
· Comnet Jan 29-Feb 1, Washington, DC
· OPWV Openwave Analyst Meeting Jan 30-31, San Francisco, CA
· LinuxWorld Conference and Expo Jan 30-Feb 2, New York, NY
· Brio Analyst Lunch Jan 30, New York, NY
· AOL/TWX AOL/TWX Analyst Meeting Jan 31
· Semicon Korea Jan 31-Feb 2, Seoul, Korea
· FOMC Policy Announcement Jan 31
· CSFB Technology Media Telecoms Convergence Conference Jan 31, London, UK
· Apple Analyst Meeting Jan 31, Cupertino, CA
· Verisign 2001 Analyst Day Feb 1, San Jose, CA
· Computer & Communications Association Meeting Feb, 3-6, Austin, TX
· Verizon Investment Community Meeting Feb 7, New York, NY
· Commerce One Analyst Meeting Feb 8, Pleasanton, CA
· Oracle AppsWorld Feb 11-14, Paris, France
· Manugistics Press/Analyst Day Feb 13-15, San Francisco, CA
· FreeMarkets User Conference Feb 15-16, Scottsdale, AZ