( ESNUG 374 Item 1 ) -------------------------------------------- [06/14/01]
Subject: More Wall St. Analysts Think Magma Must Be Profitable Before IPO
> Rumor is that Magma's been trying to get itself bought out by one of the
> Big Four EDA vendors. Cadence, Synopsys, and Avanti are all rumored to
> have said no right off and Mentor's rumored to have said no twice. This
> has left Magma starved for cash, hence this desperate IPO. "This seems
> like a premature IPO," said Jessica Kourakos of Goldman Sachs. "Magma
> has been trying to sell themselves for some time now to no avail."
>
> "There's no question that Magma needs the money given their $3 million a
> month burn rate and lack of revenues," replied Jay Vleeschhouser of
> Merrill Lynch. "What can I say? Magma has an appetite for cash."
>
> - from "The Magma Desperados" ( EE Times 6/4/01 )
From: Jennifer Jordan <Jennifer.Jordan@blak.com>
Hi, John,
I'd echo what you've already heard about Magma. I have also heard from
all the major EDA players that Magma was shopped heavily prior to this
filing and that all the majors turned them down. Two reasons cited were
failure to penetrate the market significantly in the past two years and
a product that had trouble managing large designs.
When I look at Magma, I think it looks like the banks are trying to turn
EDA into the next Internet bubble. Early in the Internet craze, banks
avoided bringing public companies with less than $18-$20 million in
trailing twelve month sales. As the gold rush continued the standard
got lower and lower. Many later deals were of lesser quality and had
fewer sales.
With $8.4 million in sales and this kind of burn rate, I'd say the
investors who buy this thing after the large funds flip risk getting
burned themselves.
- Jennifer Jordan
Sr. Research Analyst
Wells Fargo Van Kasper Portland, OR
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From: Garo Toomajanian <GToomajanian@dainrauscher.com>
John,
I knew you were going to get dinged on the deferred revenue issue. Not all
of bookings will end up in deferred revenue.
But one thing that is also interesting comparing Magma to some of the other
recent IPOs like Synplicity, Verisity, and Simplex is where each stood with
respect to profitability when they went public.
Synplicity was profitable its first quarter as a public company. More
recently, Verisity and Simplex had already shown two profitable quarters
(on a pro forma basis) when they went public -- something investors are
increasingly looking for in this post-dot-com era.
Contrast that to Magma, who according to what I've read, isn't expecting
to show a profit until the December quarter of this year. Waiting for Q4
profitability might be a little far out for investors today.
- Garo Toomajanian, Research Analyst
Dain Rauscher Wessels Boston, MA
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From: Larry Buckman <lbuckman@dal.asp.ti.com>
John,
Your Magma desperados column was pretty eye opening since we're building a
flow around Blast Fusion here at TI ASIC. And yeah, we're only doing blocks
with it right now. One question: Is there any similiar info for Monterey
Design and their Dolphin product? I'm just curious if they're in the same
boat as Magma.
- Larry Buckman
Texas Instruments ASIC Physical Design
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